Co-op Boards Can Claim Fraud When a Buyer Lies

In 2014, Gene Vilensky submitted an application to purchase an apartment at Trump Village Section 4, a large cooperative in Brooklyn. Although Vilensky signed an agreement that he “would not permit persons other than those permitted by the proprietary lease to live in the apartment,” he began to list the apartment on Airbnb.

The board sued Vilensky. It asserted fraud, alleging that he never intended to reside in the apartment and had bought it with the intention of using it for “commercial purposes.” The board sought cancellation of the stock certificate and occupancy agreement, as well as legal fees and a permanent injunction stopping Vilensky from leasing the apartment. 

Vilensky disagreed, of course, and moved to dismiss the complaint, contending that it was vague, devoid of facts, and failed to specify what was false or fraudulent. He then counterclaimed that he was physically prevented from entering the apartment, suffered emotional distress, and that the warranty of habitability was breached.

Motion denied, appeal filed. The court held that Vilensky’s motion to dismiss the fraud claim must be denied, since Trump Village 4’s complaint sufficiently alleged that his application fraudulently represented that he would be living in the apartment. The court further upheld a fraud claim because the false representation on the application led the board to waive its option to purchase the apartment. The court also dismissed all of Vilensky’s counterclaims, and he appealed the court’s decision that he had committed fraud.

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The appeals court held that allegations that a party entered into an agreement while lacking the intent to perform it are insufficient to support a claim of fraudulent inducement. However, the board alleged a misrepresentation of facts that served as an inducement for the board to approve the sale and waive its option to purchase the apartment. In that situation, the defrauded party may have a cause of action for fraud. The court therefore held that the trial court had properly permitted Trump Village 4’s first cause of action — fraud — to proceed.

The legal lesson. It’s instructive that the trial court and an appellate court allowed a cooperative to bring a fraud action in this case. It is not uncommon for an applicant to claim he will move in and instead install an adult child in the apartment, or to sublet the unit. In the past, boards have had little recourse. This case is virgin territory. It tells us that if a board can prove fraud, it may be able to collect major damages or even terminate the lease. Therefore, it’s imperative for co-op boards to follow such disputes to their legal conclusion.  

Andrew P. Brucker is a partner at the law firm Armstrong Teasdale. The statements and views in this article are his own and not necessarily those of the firm.