Case Law Summaries

Spiegelman v. 2100 Linwood Avenue Owners, Inc.

• Opinion Date: June 11, 2001
• Real Property Law
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COOPERATIVES—Upon a shareholder’s material breach of a proprietary lease, a cooperative housing corporation can terminate the lease and repurchase the owner’s shares, but upon resale, the shareholder is entitled to any excess proceeds.

An owner of a cooperative residential apartment by virtue of owning shares in the cooperative corporation and being the tenant under a proprietary lease was found by the court to have materially violated three subletting rules in his proprietary lease. That outcome was upheld by the New Jersey Supreme Court, but the matter was remanded to the Appellate Division for reconsideration of the lower court’s award of attorneys’ fees. Consolidated with that remand was an appeal involving a subsequent suit by the cooperative corporation seeking termination of the proprietary lease and forfeiture of the owner’s shares in the cooperative. In the second matter, the lower court found the apartment owner to be collaterally estopped from arguing that he was not in violation of the lease by the findings of the original subletting suit. He also sought to have the award of attorneys’ fees in the second suit set aside. The Court first looked at the award of attorneys’ fees in the original case. In that case, the issue was whether the cooperative corporation had unreasonably inhibited or prevented the apartment owner from making the unit available for rental, which would be in violation of N.J.S. 46:8D-13.1. Actually, the apartment owner failed to comply with what the Court held to be the “properly adopted rules of the association” pertaining to subleasing. He had not completed the standard application nor had he paid the established fee to obtain written permission to sublease his unit. Further, the lower court, in that case, observed that had he “followed appropriate procedure, [he] would have been granted permission to sublet his apartment just as other tenants had.” The Court listed a significant number of reasons that would make it unreasonable for a cooperative corporation to deny subletting and pointed out that the statute “does not impose a blanket prohibition against any restrictions on cooperative rentals.” The lower court held that the apartment owner “brought his problems upon himself” by failing to follow established procedures to obtain permission to sublease. When he brought suit against the cooperative corporation for damages he allegedly sought for being denied to sublet the unit, he forced the cooperative corporation to incur attorneys’ fees and costs in defense of the suit. The proprietary lease provided that the association would be entitled to attorneys’ fees and disbursements incurred in defending such an action. Consequently, the Court held that the statute governing the subletting of cooperative apartments could not serve to alleviate the apartment owner’s obligations to comply with the properly adopted and reasonable rules of his association. That having been said, the Court then pointed out that “[o]ne of the core foundations of a common interest community is the sharing of expenses for maintenance among the residents. If the community, however, is compelled to shoulder higher legal expenses because of the intransigence of a small number, we cannot consider it unfair or unreasonable for the Association to seek” attorneys’ fees. Consequently, the award for attorneys’ fees in the initial subletting action was affirmed. In response to the action terminating the proprietary lease, the apartment owner argued that he was not in default at the time the foreclosure action was filed against him. The Court disagreed, holding that the findings in the prior case showed that the apartment owner breached his proprietary lease by failing to comply with the established procedures of obtaining the right to sublet the apartment. Further, the proprietary lease provided that after a tenant’s default, the lease could be terminated, and upon termination of the lease, the apartment owner/tenant was entitled to surrender his or her shares in the corporation. The Court held that the association “had the right, as a matter of law, to repurchase the shares and regain possession of the apartment.” When the cooperative corporation sold the shares, the balance after payment of moneys owed to the corporation, including for attorneys’ fees and disbursements, would be remitted to the defaulting apartment owner. As to the attorneys’ fees in the second matter, the Court reiterated that if the association were not reimbursed for its reasonable attorneys’ fees, the innocent shareholders in the cooperative corporation would be penalized. Consequently, the Court awarded attorneys’ fees in the second matter and then awarded an additional amount of reasonable attorneys’ fees to reimburse the cooperative corporation for its costs to defend the appeals.

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