Housing cooperatives, or “co-ops” as they’re commonly known, occupy an unusual niche among forms of joint stock enterprises. Like any corporation, the tenant-shareholders have a common interest in maximizing for everyone’s benefit the value of the co-op’s assets, i.e., the apartment building and its common elements, but being neighbors who live above, below and beside one another, the tenant-shareholders also have intrinsically competitive interests regarding rights of access, use, development, transferability, etc., that can have a direct, disparate impact on quality of life and the resale value of their individual apartment units.
In large co-ops, where no single tenant-shareholder has a significant percentage of voting power, the centralized management authority of a democratically elected board of directors, exercised pursuant to the co-op’s by-laws, can regulate and mute any divergence between common and individual stockholder interests. Such centralized management, as in any corporation with widely dispersed ownership, effectively compartmentalizes decision-making at the board and shareholder levels.
But not all co-ops are large. In Manhattan and other parts of New York City there are many small co-op properties, including converted walk-up tenements and industrial loft buildings, with as few as four, five or six units where each tenant-shareholder may have a seat on the co-op’s board of directors and material voting power, thereby melding into one the theoretically distinct realms of director and shareholder authority and likewise conflating common and individual concerns.
Which also means that relations between tenant-shareholders in small co-ops can fall victim to the same kinds of infighting and dissension that afflict any small, closely held, owner-operated business enterprise. Some years ago I wrote about a Brooklyn co-op shareholder who petitioned for judicial dissolution of a five-unit co-op on grounds of oppressive conduct by the majority shareholders, which led to a statutory buy-out and contested valuation proceeding (read here and here). A Manhattan appellate panel’s decision last month in Akasa Holdings, LLC v Sweet, 2014 NY Slip Op 01822 [1st Dept Mar. 20, 2014], illustrates another kind of co-op shareholder dispute involving a battle for board control of a four-unit co-op, pitting one tenant-shareholder owning a majority of the voting shares against the other three tenant-shareholders. Continue Reading Legal Battle Over Board Seats Splits Neighbors in Manhattan Co-op