Reilly v. Riviera Towers Corp.

310 N.J. Super. 265, 708 A.2d 728 (App. Div. 1998)
  • Opinion Date: March 27, 1998

COOPERATIVES; SUBLETTING—A cooperative housing association cannot charge a subletting privilege fee unless its organizational documents or proprietary lease expressly gives its such a right.

The board of directors of a cooperative corporation adopted a policy requiring tenant-shareholders to pay a sublet fee for each subleased unit. Some tenant-shareholders challenged the board’s authority to impose such a fee, but the lower court granted the cooperative corporation’s motion for summary judgment.

The Appellate Division stated that the relationship between a co-op and its shareholders is determined by its certificate of incorporation, by-laws, and the proprietary lease, all of which should be read together. The board of directors relied on the proprietary lease, which stated that there shall be no sublease without the corporation’s permission, as authorized by a resolution of the board of directors. However, the proprietary lease also effectively gave a majority of the shareholders the right to override the board’s denial of a sublease. The Court stated that because the plain language of the proprietary lease does not give the board the power to impair or dilute the ability of the shareholders to override a denial by the board, any sublet fee, and even the right to dilute any power of the shareholders, must be authorized in the governing documents. It also found that, unlike other co-op governing documents cited in prior decisions, neither the proprietary lease nor the by-laws permit the board to: (1) charge a sublet fee; (2) impose any conditions precedent to subletting it deems necessary; or (3) establish a reasonable fee to cover actual expenses. Since none of the governing documents expressly give the board the power to impose a sublet fee, the Appellate Division held the fee to be invalid unless shareholder approval is granted or the proprietary lease is amended.