Kaplan v. Park South Tenant Corp., New York County Supreme Court, Index No. 157669/2013
While the business judgment rule often protects a decision by a co-op board from legal challenge, there are times when it does not. As a recent decision by New York County Supreme Court Justice Arthur Engoron demonstrates, the Board’s business judgment cannot trump the tenant-shareholder’s proprietary lease.
the proprietary lease trumps the business judgment rule
Kaplan began with the tenant-shareholder’s request to install an air conditioning system on terrace space appurtenant to the tenant-shareholder’s apartment. The proprietary lease provided that any alterations to a co-op unit could not be made without the prior written consent of the board of directors not to be “unreasonably withheld.” Plaintiff sought a preliminary injunction seeking a declaration that the co-op would not take any action preventing the plaintiff from installing the air conditioning system and relocating a telecom riser.
Justice Engoron granted the preliminary injunction expressly holding “the proprietary lease trumps the business judgment rule.” The court further found that the co-op board had been unreasonable in its refusal to consent to the tenant-shareholder’s proposed alterations primarily because of the minimal impact the proposed alterations would have on other tenant-shareholders. The court also ruled that it could award such relief on a motion for preliminary injunction because it would still try the issue of whether the board’s refusal to withhold consent to the tenant-shareholder’s proposed alteration was reasonable. The court concluded that if the board’s action were found to be reasonable, the tenant-shareholder could be required to remove the air-conditioning system and restore the premises.
The lesson of Kaplan v. Park South Tenant’s Corp. is that while the business judgment rule provides co-op boards with broad latitude, co-op boards may not take any actions in derogation of the proprietary lease.