For more than 40 years, one New York co-op operated under the belief that its board could approve or reject subleases and transfers for any reason, the way most co-op boards do. Then a dispute over a sublease led to a closer read of the proprietary lease, and the board discovered that assumption was wrong.
Braverman Greenspun principal Tracy Peterson broke down the case in a recent interview with Habitat Magazine’s Carol Ott. Instead of the standard consent provision, the building’s proprietary lease contained a right of first refusal, a structure far more common in condominium bylaws than in co-op governing documents. Under a right of first refusal, a board cannot simply reject a prospective buyer or tenant. It can only step in and take the deal on the same terms; an option boards rarely have the funds or the appetite to exercise.
The provision had gone unnoticed by generations of attorneys, managing agents, and shareholders. Once it came to light, the board responded with a shareholder memo and a town hall meeting to explain the situation and lay out next steps. No decision has been made yet on whether to formally amend the lease.
Tracy’s advice applies well beyond this one building. As she told Habitat, “Read your governing documents. Read them. Familiarize yourself with them.” Knowing what your board can and cannot do, she notes, is one of the most useful things a board member can bring to the table.
Watch the full interview here.