Housing Cooperatives: Board Power, Shareholder Rights, and Litigation Standards

When you "purchase" a co-op, you are acquiring personal property(shares of stock)rather than a deed to real estate. In exchange, the corporation grants you a proprietary lease. This lease acts as the "constitution" of your home, detailing your responsibility for monthly maintenance fees which cover the building’s underlying mortgage, property taxes, and operational "burn rate."

Disputes in NYC cooperatives often follow a dual-track jurisdictional path:

• Civil Court (Housing Part): Generally handles summary proceedings related to non-payment of maintenance or traditional "holdover" evictions.
• Supreme Court: Reserved for complex litigation, such as seeking a declaratory judgment to invalidate a board decision or pursuing injunctive relief to stop a lease termination.

The landmark case Levandusky v. One Fifth Ave. Apt. Corp. Established that New York courts will apply the "Business Judgment Rule" to cooperative board actions. 

This means a court will not second-guess a board’s decision as long as it is:

• Within the Scope of Authority: Permitted by the bylaws and proprietary lease.
• In Good Faith: Furthering the legitimate interests of the cooperative.
• Non-Discriminatory: Compliance with all residential housing law and fair housing mandates is mandatory.

While boards have the right to vet applicants, they must comply with evolving standards. Under the NYC FARE Act (Local Law 119 of 2024), which went into effect on June 11, 2025, the party who hires a broker or agent is responsible for the commission. Boards and agents are prohibited from passing these brokerage costs to prospective shareholders or tenants unless the applicant independently retained the agent.

Based on the case 40 W. 67th St. V. Pullman, a cooperative may terminate a proprietary lease if the board follows the strict "procedural rails" laid out in the governing documents. Unlike a standard eviction, the board’s findings of "objectionability" are given great weight by the court, provided the shareholder was given notice and an opportunity to be heard before a vote was taken.

Termination involves a high-stakes dual recovery:

• Recovery of Possession: The physical removal of the occupant from the unit.
• Seizure of Shares: The eventual sale of the shareholder’s stock to satisfy debts or damages. Because this process involves the forfeiture of significant equity, any failure in the service of process or the board's fiduciary duty can lead to a terminal dismissal of the action.

To perform a surgical review of your housing cooperative dispute, please prepare the following:

• The Proprietary Lease & Bylaws: The foundational "laws" of your specific building.
• Board Correspondence: All emails, letters, or "Notices of Violation" received from the board or management.
• Maintenance History: Proof of current payments and any disputed assessments.
• Application Package: If the dispute involves a purchase rejection, a copy of the materials submitted to the board.
• Evidence of Conduct: Documentation (photos, witness logs) to rebut allegations of "objectionable conduct."