Sponsors and Holders of Unsold Shares: Everything Old Is New AgainApril 8, 2021 – New York Law Journal
Andrew B. Freedland and Deborah Koplovitz wrote an article for the New York Law Journal's Condominium and Cooperative column which discusses how recent decisions have revived the conversation about rights of sponsors and holders of unsold shares in residential cooperative corporations. This issue has arisen again because since 2019, some boards have relied on dicta in Pastena v. 61 W. 62 Owners, 169 A.D.3d 600 (1st Dep’t 2019) to argue for an extension of BCL §501(c) beyond “original purchasers”, to holders of unsold shares. But a more recent February 2021 decision, by U.S. District Court Judge George B. Daniels for the Southern District of New York, provides a comprehensive roadmap for analyzing New York law as to whether a holder of unsold shares is exempt from sublet fees or board-approval requirements. Dunnegan v. 220 E. 54th St. Owners, No. 20 Civ. 2418 (GBD), 2021 WL 516958 (S.D.N.Y. Feb. 10, 2021).
In reaching his decision that a holder of unsold shares is not an "original purchaser" and can be treated differently under BCL §501(c), Judge Daniels evaluates a long line of New York Appellate Division cases that have consistently held that BCL §501(c) requires that similarly situated shareholders be treated the same.
Sponsors and holders of unsold shares will continue to have additional rights not afforded to original purchasers of units in a condominium or cooperative, so a board hoping to solidify its entitlement to sublet fees and other oversight will have to hold each claim for an exemption to the light of the governing documents.
This is discussed in the full analysis that originally appeared in the April 8, 2021 publication of the New York Law Journal. Access may require a subscription.