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Buyer Beware: Don't Rely on Board Promises If the Documents Contradict

Frank Lovece in Board Operations on October 26, 2012

Woodstock Tower, Murray Hill, Manhattan

Oct. 26, 2012

Based on that assurance, she said in Razzano v. Woodstock Owners Corp. et al., she bought in the 525-square foot, 20th-floor apartment, closing on it a month later. On March 9, 2009, Razzano submitted a written request of Eileen Aluska of Orsid Realty seeking permission to sublet due to being sent temporarily abroad for her job. On March 31, that request was denied.

Razzano, who said she subsequently had to put her apartment up for sale, sued the corporation, the co-op board members and Orsid that August, alleging breaches of contract, fiduciary duty, good faith and duty of care; misrepresentation; fraud; discrimination; and violation of the Business Judgment Rule. Part of her reasoning was that shareholders who bought before October 2002 were allowed to sublet, but not shareholders who bought after that date, thus claiming the policy was not applied equally to all. 

Where a written agreement
contradicts allegations, the 
documentary evidence warrants
dismissal of the complaint.

On this past Oct. 5, Judge Paul Wooten of State Supreme Court, New York County, dismissed the complaint. The proprietary lease, he wrote, stated, "There shall be no limitation on the right of Directors or Lessees [who could override the board if at least 2/3 of the shares voted to allow] to grant or withhold consent, for any reason or for no reason, to a subletting.," and that an amendment sating "that for the purchase of share subsequent to October 2002, subletting … is not permitted." Razzano, in fact, had signed an acknowledgment a month before the admissions interview that she was aware of the no-sublet policy.

Yeah, But Didn't the Board President Say...?

What about Anderson purportedly telling Razzano that the co-op board could be flexible? Anderson, in an affidavit, denied making such a claim — and, it turns out, it wouldn't have mattered if she had made that empty promise.

How is that? Wooten pointed to an appellate decision in the 2004 case 150 Broadway N.Y. Assoc., LP v. Bodner, which established that, "Where a written agreement … unambiguously contradicts the allegations supporting a litigant's cause of action for breach of contract, the contract itself constitutes documentary evidence warranting the dismissal of the complaint … regardless of any extrinsic evidence or self-serving allegations offered by the proponents of the claim."

Razzano also believed shareholders buying after October 2002 where being treated unequally. The court ruled that according to the minutes of a June 2009 shareholders meeting and a survey of the shareholders, the no-sublet policy was instituted of necessity in 2002 because, Wooten wrote, "the owner-occupancy rate of the cooperative was low, and the building was rundown and in need of several repairs." The board, he said, instituted the policy in an effort of increase owner-occupancy in order to help convince a bank to refinance the co-op's underlying mortgage.

The Expanding Business Judgment Rule

Finally, Wooten said there was no discrimination involved since the board didn't single Razzano out for disparate treatment — and he even noted a recent expansion of the Business Judgment Rule: In the 2012 case Bregman v. 111 Tenants Corp., the Appellate Division decided that:

"…while a board may not deliberately single out individuals for harmful treatment, if a board of directors becomes aware of a situation or conduct of a particular shareholder that it considers contrary to the interests of the cooperative generally, there is no prohibition against the board's adoption of a policy protective of those broader interests, even if the policy is responsive to a single shareholder's situation or conduct." 

Razzano, who is still listed in the telephone directory as residing at the apartment, was instructed to pay the co-op's legal fees. As of June, 9 2012, the apartment was listed for sale at $599,000.


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