Boards Fighting Back When Sponsors Illegally Refuse to Sell Shares

There, 75 angry co-op shareholders heard New York State Assembly members Jim Brennan (above) and Helene Weinstein of Brooklyn, along with FDC staff and attorney Beatrice Lesser (who litigated the landmark 511 West 232 Street Owners Corp. v. Jennifer Realty Corp. ) explore the limits of sponsor control. Jennifer demonstrated that a sponsor can be held liable for harming the viability of a co-op — by milking it for money, for example, to the point where operational expenses cannot be met.

In building after building, tenant-shareholders who have put up with bad management stood to add their voices to the chorus. From the huge Mansfield Gardens co-op, Arlene Lennon said that her super often goes missing and that the board is "inactive." Vicky Madden, of 300 Ocean Parkway, complained that "the sponsor sells apartments at or below market rates to cronies."

A cooperator from the Bronx (who did not want his name used) put up a list of key points in his co-op that seemed to resonate with everyone. The sponsor, he said,

(1) has financial control and is also the management company
(2) the building is beholden to the sponsor for money
(3) the board is "at the beck and call" of the sponsor
(4) there is no reserve fund
(5) the sponsor has not sold apartments for years.

The striking similarity of the problems led him to talk about "cross-pollination" among sponsors. "This is a whole lot bigger than what we believe to be the case," he said.

Robin Redmond, executive director of the FDC [link], took an activist position that pleased many in attendance: "We want to create a citywide movement to help cooperators who are struggling with sponsors who do not have the building's best interests in mind," she said. Lesser held what amounted to a condensed legal clinic at the FDC meeting, noting that Jennifer compelled the sponsor-controlled board to sell shares.

But that litigation, proving that the co-op was not viable, took ten years. After considering the above cases, the definition of a non-viable co-op emerged. "You have to have regular meetings. You have to be able to reach all apartments. You have to be able to refinance your mortgage. You have to have a reserve fund. The board must be in control. Otherwise, the co-op is not viable, and you can bring a Jennifer[-type] case. But that takes money and determination."

Lesser urged a rent strike if the warranty of habitability is violated, and she called the loose confederacy of sponsors behaving badly "a money-making machine" that can only be fought through collective action. "[As an individual, you] can do it yourself. But if you try, you're picked off."

For more information about the FDC and upcoming events, e-mail: rsunyc@gmail.com or phone Aga Trojniak at the FDC: (718) 859-4763.

Adapted from Habitat December 2008. For the complete article and more, join our Archive >>