How to Deal with Objectionable Conduct

We represented a co-op where a shareholder engaged in repeated violations of the co-op’s house rules and proprietary lease provisions. The violations included noise issues; odors; leaving the gas of the stove on; and leaving food cooking in the oven unattended on multiple occasions, which caused a fire and smoke to fill the hallways. Because the incidents were spaced apart over months and even years, we recommended that the board seek to terminate the shareholder’s proprietary lease because of his “objectionable conduct.” Legally, the board could do so if the shareholder or occupants of the apartment repeatedly violated the house rules or the shareholder was deemed a person of dissolute, loose, or immoral character.

In this particular co-op’s proprietary lease, the board was allowed to terminate the lease based on the shareholder’s objectionable conduct, as opposed to other leases that require a vote of the shareholders. This did, however, require strict compliance by the board with the terms of the proprietary lease and the bylaws. Ultimately, a special meeting of the board of directors was called, at which the shareholder was given an opportunity to be heard and respond to each allegation of objectionable conduct. At the end of the meeting, the board voted on whether to terminate the proprietary lease. Ultimately, the shareholder agreed to sell the apartment and if it was not sold by a prescribed date, the shareholder agreed to leave and never return. The shareholder also agreed to and did repay the co-op for all legal fees expended.

Takeaway

When a shareholder repeatedly violates the co-op’s house rules and other governing documents (provided they are significant violations), boards should consider taking an aggressive approach by availing themselves of the provision entitling the co-op to terminate the lease. This approach will force the shareholder to resolve the matter or face eviction.