Q. About two years ago, a shareholder in our co-op was approved to buy the apartment adjacent to his with the stated intention of combining both units to use as his primary residence. One year later however, the units are still separate, and the shareholder has listed one of them online as a sublet. The board is split on whether he should be allowed to do this. Several board members are accusing the shareholder of misleading the board, stating they would not have approved the purchase of the adjacent unit as a sublet because the co-op does not allow investment purchases. Other board members say let him do it, he didn’t know the rules. What's the best course of action here?

                                  —Shareholder Saviness 

A. “This is a prime example of why clear documents are needed when a shareholder makes this type of request, and why the co-op’s legal counsel should be involved in the request and any documents needed,” says Marc Schneider, CEO and Managing Partner of Schneider Buchel LLP in Woodbury, NY. “First and foremost, I urge you to speak to the co-op’s attorney on this matter, as the actual answer to your inquiry will depend on the documents which do exist (i.e.–a separate agreement and/or the co-op’s proprietary lease, bylaws and house rules).”  

Schneider goes on to say that “there should have been an agreement drafted by the co-op’s counsel setting forth exactly what rights that shareholder has with respect to combining, and the ultimate combined units. That agreement could have explicitly prevented exactly what this shareholder is attempting to do, assuming the board desired to prevent it. Assuming no such agreement exists, you must turn to the co-op’s governing documents to determine what rights both the board and the shareholder have. 

“First, do the co-op’s governing documents address the right to sublet? Most proprietary leases give the board the right to make that determination in most instances, with some exceptions typically set forth in the governing documents. If the co-op prohibits ownership of apartments solely for investment, or prohibits subletting and requires owner occupancy, then listing the second apartment for sublet would violate those provisions, regardless of what the shareholder claims he intended at the time of purchase. Intentions are irrelevant if not supported by a document permitting those intentions. If the co-op’s documents simply state that subletting is prohibited absent approval by the board, the board could still refuse to permit the sublet, even in the absence of an agreement. 

“That being said, if the shareholder requested the right to not combine the apartments at his discretion, and there are board minutes that reflect that, it could be another way that the intended actions could be permitted,” Schneider adds. “Similarly, if the documents relating to the request and approval state that the units had to be combined, and that the approval was based on their combination, then the shareholder’s actions would likely be prohibited. I recommend you review the co-op’s records relating to the request and approval such as the following: 

• The board approval letter

• The purchase application

• Board meeting minutes

• Any alteration agreement or unit combination agreement

• Any contract of sale provisions

“Regardless of the foregoing, I do recommend the board speak to its counsel promptly and take any legal action required. Allowing the shareholder to do something that isn’t permitted in your governing documents could have legal consequences if too much time lapses with no action. Similarly, if a subletter moves into the unit, there will be other complications, including legal action required in order to remove that occupant.”