Sometimes the Fastest Route Is a Straight Line

May 13, 2022New York Law Journal

Herrick partner Andrew B. Freedland and former partner Deborah Koplovitz wrote an article for the New York Law Journal discussing the matter of Trump Village Section No. 4 v. Gene Vilensky a/k/a Gene Vilenskiy, Index No. 522355/2016 (Kings County), where a residential housing corporation’s concern about alleged statements made in a purchase application played a central role. Deborah and Andrew limit the discussion to the coop’s claims (1) for monetary damages arising out of its claim that it was fraudulently induced to waive its right of first refusal and (2) for rescission of the defendant’s occupancy agreement.

In 2014, the defendant applied to Trump Village Section No. 4 to purchase the shares appurtenant to apartment 2E. The application included a representation "under the penalty of perjury" that Mr. Vilensky understood that any false information, omission of material information, "may result … in rejection of the Application by the Board of Directors, revocation of any approval given and, after closing, termination of the Applicant’s Proprietary lease, it being agreed that such falsification or omission … constitutes a material breach of the Proprietary Lease …." The Defendant listed only himself as the occupant of the apartment. Id. at 3.

The purchase application further provided that a misrepresentation may result in termination of the applicant’s lease. The Coop’s lease required that subleases be for a term of at least a year, and required the prior written approval of the Coop. In June 2016, the Cooperative alleged that it reviewed the Airbnb platform to determine if Coop residents had listed their apartment for short-term rentals, in violation of the cooperative’s proprietary lease. Shortly after its search of Airbnb, the Coop instituted an action against Mr. Vilensky based on the alleged use of the apartment for short term rentals, and on the misrepresentations contained in his purchase application. The Coop included, among other things, claims for fraud and rescission of the plaintiff’s waiver of the right of first refusal. Id. at 4.

Justice Joseph concluded that the rescission claim was not legally viable because there was a legal remedy, i.e., monetary damages or termination of the Proprietary Lease, which were found both in the occupancy agreement itself and the purchase application. Id. at 12.

In our experience, the standard procedure (and the more direct route) is to terminate a proprietary lease and recover possession of a cooperative apartment in a landlord-tenant proceeding to address lease defaults, whether those defaults are violations of the sublet provisions of the proprietary lease, or other types of lease defaults. See, e.g., Mitchell Gardens No. 1 Coop. v. Cataldo, 175 Misc. 2d 493, 494 (App. Term, 2d Dept., 1997).

On the other hand, there have been claims involving the waiver of the right of first refusal and misrepresentations in the purchase application, but the cases we could locate involved condominiums. See, e.g., Bd. of Managers of Soundings Condo. v. Foerster, 138 A.D.3d 160 (1st Dept. 2016). Incidentally, that case ultimately resulted in the defendant’s sale of that apartment. Bd. of Managers of Sounding Condominium v. Foerster, Index No. 153150/2014, Dkt 232, New York County. This matter is yet another illustrative reminder of the difference between cooperatives and condominiums.

This Coop’s choice to request rescission of the occupancy agreement, instead of pursuing a holdover case appears to have been a time-consuming, and likely costly one, since Justice Joseph also awarded legal fees to Mr. Vilensky as the prevailing party.

This is discussed in the full analysis that originally appeared in the May 13, 2022 publication of the New York Law Journal. Access may require a subscription.

For more information on condominium and cooperative law matters, please contact:

Andrew B. Freedland at +1 212 592 1623 or [email protected]