Friday, May 4, 2012

Cooperative House Rules Illustrated


A case decided yesterday, 5/3/12, perfectly illustrates the power of cooperative boards. The case addresses whether the board, under the Business Judgment Rule, may create a house rule that restricts subletting. In the situation in the case the restriction imposed was as follows:

 "no [l]essee shall be permitted to sublet the whole or any part of an apartment or renew or extend any previously authorized sublease for more than two years during any four consecutive year period unless consent thereto has first been duly authorized by a resolution of the Directors or . . . by [l]essees owning at least 66⅔% of the then issued and outstanding shares of the Corporation."

The Appellate Court held that the board did have the power to enact such a rule under the Business Judgment Rule. Even going further, the Court rejected a prior decision to the contrary stating cooperative boards have “the authority to freely adopt a new policy in the legitimate interest of the cooperative”.

To read the decision, click here