United States: A Change Of Mind

Originally published in Habitat Magazine in September 2017

What happens if a co-op board approves construction in or outside of an apartment – and then changes its mind? As Moltisanti v. East River Housing Corporation demonstrates, it all depends on how the involved parties interpret the governing documents, and what actions they take.

In 2012, Salvatore Moltisanti purchased a cooperative apartment in the fourbuilding 1,672-unit East River Housing Corporation, more commonly known as Cooperative Village. Many of the apartments had enclosed balconies, and Moltisanti wanted one too. He asserted that he was told by the board that no permits were necessary and that after the payment of certain fees and the retention of an approved contractor, the enclosure could be built. It took more than two years to install the framework for the enclosure.

By late 2015/early 2016, the board had apparently changed its mind and now forbade Moltisanti from completing the work, demanding that he remove the framework. Moltisanti sued, insisting that the board be forced to let him to go ahead. The lower court granted Moltisanti's application for a preliminary injunction that required the co-op to permit completion of the work, since it had been previously approved.

The appellate court reversed this decision, arguing that a preliminary injunction should maintain the status quo. Courts should not, in the guise of granting "preliminary" relief, grant the ultimate relief – in this case, the ability to complete the enclosure. Irreparable injury will not be found if the suit can be settled with money, which was the case here. Under the circumstances, the appellate court believed the preliminary injunction should not have been issued.

The appellate court also denied Cooperative Village's demand for an injunction prohibiting completion of the enclosure. The appellate court acknowledged that the proprietary lease provided that written consent was needed before any terrace or balcony structure could be constructed – and that none had been obtained here. The lower court had dealt with this argument by finding that the enclosure was approved not only orally, but by the building's "actively permitting work to be performed in accordance with the defendant's own specifications/requirements."

The appellate court, however, determined that the following were all issues of fact to be decided at trial: whether a written statement was necessary; whether the board could waive the requirements of the lease; or whether allowing a partial performance of the work could stop the board from arguing that a written statement was required.

Finally, Moltisanti complained that he was treated differently from other shareholders because he – and no one else – was required to obtain written permission to build an enclosure, while everyone else was allowed to add enclosures simply by talking with the board. He asserted that these actions violated the Business Corporation Law Section 501(c), which provides that all shares be treated equally. The lower court did not address this argument, and the appellate court quickly disposed of it, finding that this was not the type of unequal treatment the statute addressed.

The Takeaway

An important issue in this case was whether either party was likely to succeed on the merits – a necessary element for the granting of a preliminary injunction. The lower court determined that Moltisanti would probably prevail because of the actions taken by the board. The appellate court, however, demurred, finding instead that the board's actions created issues of fact, meaning that the case had to go to trial for resolution.

Although Moltisanti v. East River Housing Corporation will not be the final word on this subject, we remind boards that they may not be able to rely on a proprietary lease clause if the cooperative, through its board or agent, violates that provision. We cannot stress often enough the need to comply with governing documents and procedures.

Attorneys
For Plaintiff: Law Office of Alison M. Furman
For Defendant: Sills Cummis & Gross

The authors thank Julia Casteleiro for her assistance in preparing this article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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