Thursday, May 3, 2012

Co-Op House Rules & the Proprietary Lease

When purchasing a cooperative apartment you should always read the house rules as they set the standards for living in this environment. For example, the house rules may require that a percentage of an apartment be covered with carpeting to prevent noise or a house rule may not permit swimming in the pool after a certain hour or the rules may contain a no pet policy. Nonetheless, house rules should not be read in a vacuum and its quite important for prospective purchasers to not only study the house rules, but also the proprietary lease, which sets the outer limits of a Board's authority to set the rules. So, when a rule exists in the house rules that is contrary to the proprietary lease, the lease typically holds the day.

Yet, if you are planning to move into a building where the proprietary lease authorizes the Board to set rules for something like carpeting and the house rules do in fact set such a rule, you will be blown away to know that a Board needn't enforce this rule and no one can force them to do so. Why is this you may ask? The answer is called the Business Judgment Rule whereby a Board acting in good faith is shielded from suit when making decisions. So a rule is only enforceable rule when the Board elects to enforce it.

Nonetheless, Boards should act reasonably and their rules are much more likely to be enforced when the rule not only is embodied in a house rule, but also exists in a proprietary lease. Moreover, Boards should uniformly apply their rules or be mindful of both Fair Housing Act violations for discrimination or claims of waiver when they do choose to enforce the rule randomly.

So, perspective purchasers should review the rules and proprietary lease prior to purchasing, but realize that its also important to get to know the members of the Board because their personalities may dictate your living environment.