Co-ops and Condominiums

In co-op shareholder’s action to declare house rules void, shareholder appealed from Supreme Court’s dismissal of the proceeding. The Appellate Division modified to reinstate claims with respect to parking, and otherwise affirmed, holding that an interpretation of the offering plan might support shareholder’s claim that it had a reasonable expectation of entitlement to use its parking lot area for parking.
The co-op’s original offering plan does not explicitly prohibit parking, but advises potential buyers of the risk that there are no available parking spots. An amendment to the plan assigned a portion of the parking lot to shareholder as part of its unit. When the co-op adopted a number of house rules, including one prohibiting parking, unit owner brought this proceeding challenging the rules. Supreme Court dismissed the petition.

In modifying, the Appellate Division conceded that generally co-op boards and their members are shielded by the business judgment rule, in this case, the petition alleged bad faith in singling out a single shareholder for harmful treatment, since only one shareholder’s demised premises included a parking area. The court also held that shareholder’s easement by necessity claim should not have been dismissed because the conveyance to shareholder severed the unity of title that had previously existed with respect to the parking lot. Shareholder’s unit then became landlocked; there is no way for shipments to reach the street except through the building’s portion of the parking lot. The court, however, upheld Supreme Court’s dismissal of the remainder of unit owner’s claims, relying on the business judgment rule.