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Court upholds sponsor's sale of garage.

301 East 69th Street Associates was the sponsor of a plan to convert the building at 301 East 69th Street to three separate condominium units. One unit was the residential cooperative on the upper floors; the second unit was comprised of the commercial stores; the third unit was the garage.

The plan was presented in 1985 and, after extensive negotiations with the Tenants Association, it was declared effective in 1986. The sponsor initially retained ownership of the garage, but in 1987 it was sold to a new owner.

During the period 1987 to 1989, the sponsor retained control of the board of directors of the residential cooperative. In December 1989, the sponsor relinquished control of the Board, such that the majority of the Board members were elected by shareholders unaffiliated with the sponsor.

In November 1991 the residential cooperative corporation sought to terminate the sale of the garage unit by the sponsor to a bona fide third-party purchaser pursuant to the Cooperative and Condominium Abuse Relief Act. That Act is a Federal statute which allows residential cooperatives or condominiums to terminate "sweetheart" leases for those portions of the building which directly serve the cooperative. The Federal statute allows the Board to terminate such leases within two years after the sponsor relinquishes control of the Board.

The courts have held that whereas leases with commercial stores cannot be terminated pursuant to the Act, leases for garages, laundry rooms and other services provided directly to the condominium or cooperative are subject to terminate.

An action was commenced in Federal court by the former sponsor seeking to challenge the purported termination by the cooperative of the sale of the garage condominium unit. Joseph Burden, partner in Belkin Burden Wenig & Goldman, represented the sponsor. After the submission of papers and extensive argument, United States District Judge Louis J. Freeh ruled in favor of the sponsor and the garage operator finding that the cooperative was not entitled to terminate the sale of the garage unit. Judge Freeh found two reasons for denying the purported termination of the sale:

(a) the sale of a condominium unit was not the type of "sweetheart" arrangement that was to be covered by the Federal statute; and (b) the cooperative corporation had failed to meet the statutory deadline inasmuch as the notice of termination of the sale expired more than two years after the sponsor relinquished control of the Board.

The importance of this decision for sponsors and cooperatives cannot be overemphasized. It puts to rest the claim by residential cooperatives or condominiums that they can terminate the sale of separate condominium units. Additionally, it puts cooperative boards on notice. that if they are seeking relief under the Federal statute, their acts in seeking to effectuate such relief must be effective within the two year statute of limitations. If the board fails to do so, then even where a "sweetheart" lease is present, the board will not be able to seek termination or other relief under the Act.
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Title Annotation:Cooperative and Condominium Abuse Relief Act upholds termination of lease agreement of garage for 301 East 69th Street condominium building in New York City
Author:Belkin, Sherwin
Publication:Real Estate Weekly
Date:May 20, 1992
Words:498
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