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Can You Be Evicted from a Co-Op?

Jun 03, 2024
Practice Area:  Real Estate  |  Residential Properties

Cooperative housing (“co-op”) is one of the most common forms of ownership in major US cities. In New York City there are about twice as many co-ops as there are condominiums. The main difference between co-ops and condominiums is their ownership structure. With a co-op, you are buying shares in the corporation which then gives you a proprietary lease for your unit. However, with a condominium, you own your unit in the more traditional sense.

Can Co-Op Owners be Evicted?

In 40 W. 67th Street v. Pullman, the Court of Appeals of New York ruled that co-op boards can evict shareholders for “objectionable” behavior. In its 2003 decision, the Court of Appeals held that co-ops do not even need to establish that the shareholder’s actions were objectional. The court held that the co-op’s business decision will be upheld, unless, the shareholder can show wrongful conduct. Specifically, the shareholder must show the board acted “(1) outside of its authority; (2) in a way that did not legitimately further the corporation’s purposes; or (3) in bad faith.” This gives the co-op board the power to be both the judge and the jury of its decision-making process.

Separately from the ruling in Pullman, there are also cases where evictions can result from monetary default. If outstanding charges start to accrue, the co-op can put a lien on the unit for the charges and then foreclose on that lien.

The Eviction Process in New York

The eviction process varies from state to state. In New York, ownership rights of a co-op make the eviction process simple. Since the co-op association owns the unit, the first step is for shareholders to be given time to fix the problem. The second step is for the board to meet to discuss the termination. At these meetings, co-op shareholders should ensure that they are given the right to speak, are allowed to have legal representation present, and are given enough time to prepare for the meetings. The third step is for the board to then decide if they will be evicting the shareholder. This usually requires ¾ of the board’s directors to agree. Fourth, the board must serve the shareholder with a dated notice of termination. Fifth, the board must file an eviction action (which will proceed similarly to a normal litigation process). Finally, once this eviction action is filed, the shareholder is given fourteen days to stay and then the sheriff has the right to execute on the eviction. The shareholder’s shares can then be sold to the co-op, taken away, or leased away, thereby extinguishing a lender’s security interest.

According to Pullman, co-ops must follow the business judgement rule. The reasoning behind this is because a co-op is a corporation, just like other businesses, they need to ensure that they are able to do their job. The Court of Appeals of New York held that by their very nature, co-ops are protected by the business judgement rule, thereby making the eviction process especially important. The more the co-op can show that they are evicting because of non-biased reasons, the more likely the eviction is going to be valid.

Other states such as New Jersey and Illinois may require demand letters or to first try to resolve the dispute through ADR (Alternative Dispute Resolution), so it is important that shareholders get assistance from legal professionals if they are being evicted.

As stated above, the co-op must not be evicting for biased or personal reasons. Co-op shareholders should ensure that they are given enough time to prepare for meetings related to the evictions, given the right to speak, and are allowed to have legal representation present.

Co-Op Owner Rights

The rules of every co-op are derived from three places. First, the proprietary lease (which includes the rules and regulations) that is provided to all potential purchasers. Second, the by-laws of the building. Third, state, local, and federal laws. The state, local, and federal laws have the final say on all co-op matters.

As a co-op owner, it is important to know and understand your rights and obligations. To know your rights and obligations, be sure to check the co-op’s rules or bylaws to make sure the proper requirements are followed. The rules and regulations apply to everyone; if you feel that a certain law is only being applied to you or you are being penalized for something that is not part of the rules and regulations, you may have a cause of action. Further, the board must obey the principles of “natural justice” i.e., the board did not disclose the complaints against you, or the eviction is not based on facts.

The Rights of the Co-Op Board

The rights of the co-op board also come from the proprietary lease, the by-laws, and the state, local, and federal laws. As outlined by Pullman, the board is given significant discretion once the proper requirements are met, as long as they are not acting in bad faith.

Appealing an Eviction

Whether or not someone can be evicted from a co-op depends on the co-op’s bylaws and their rules and regulations.

If you do not understand a co-op’s bylaws or believe that your rights are being violated, make sure to contact a trusted co-op attorney.

Work with NYC Real Estate Attorney

While New York law does not strictly require purchasers to engage the services of an attorney to conduct residential real estate transactions, it is strongly advised to retain one. Navigating the purchase or sale of a co-op unit in NYC poses special challenges, making the guidance of an attorney with expertise in co-op transactions particularly critical. Cooperative apartment transactions require prospective purchasers to conduct more in-depth due diligence and sellers and owners to understand the cooperative corporation rules regarding the alteration, transfer, or sale of their units. An experienced New York City coop attorney will guide purchases by thoroughly reviewing the coop offering plan and amendments, the building’s house rules, corporation financial statements, alteration agreements, and recent board meeting minutes. The attorney will also advise the buyer of factors outlined in the coop documents that will affect any future sale of the unit, including whether the building’s finances properly managed, does the building has sufficient financial reserves, what are the terms of the underlying mortgage, the policy toward pets, and the ability to make changes to the unit.

 

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