lease. Plaintiffs argue that there is a fundamental distinction
between acquiring property "subject to" a lease, and actually
becoming a party to the lease. In the former case, an
individual may buy property which is being leased, and thereby
will only take on those covenants which run with the land, and
those liabilities which arise after acquisition.
Longley-Jones Associates, Inc. v. Ircon Realty Co., 67 N.Y.2d
346, 347-48, 502 N.Y.S.2d 706, 707, 493 N.E.2d 930, 931 (1986).
According to plaintiffs, such an individual would not be a
"party" to the lease under § 3607(a)(2) of the Act. Plaintiffs
argue that the law of New York State is clear that an
individual will not completely step into the shoes of the
transferor, and thereby become a party to the lease, unless he
affirmatively assumes the obligations of the lease.
Longley-Jones Associates, Inc., supra, 67 N.Y.2d at 348, 502
N.Y.S.2d at 707, 493 N.E.2d at 931; Bank of New York, Albany v.
Hirschfeld, 37 N.Y.2d 501, 506, 374 N.Y.S.2d 100, 103,
336 N.E.2d 710, 712 (1975).
Although the Court questions the ultimate usefulness of
plaintiffs' legal analysis in interpreting the Act, it is
noteworthy that the New York Court of Appeals cases cited by
plaintiffs appear to lend support to the position of the
Association. In Bank of New York, the lease in question
provided that "in the event of any sale . . . of said land and
building . . . it shall be deemed and construed without further
agreement between the parties or their successors in interest .
. . that the purchaser . . . has assumed and agreed to carry
out any and all covenants and obligations of the Landlord
hereunder." Bank of New York, supra, 37 N.Y.2d at 506, 374
N.Y.S.2d at 103, 336 N.E.2d at 712. The court held that the
purchaser's failure to object to the obligations of the
covenants contained in the lease, when viewed in light of the
quoted provision of the lease, acted as an affirmative
assumption of all the covenants and obligations of the lease.
Id. The court in Longley-Jones Associates, Inc., in holding
that the purchaser had not assumed the covenant in question,
distinguished Bank of New York based on the absence of the
lease provision quoted above. Longley-Jones Associates, Inc.,
supra, 67 N.Y.2d at 348, 502 N.Y.S.2d at 707, 493 N.E.2d at
Section 33.01 of the Commercial Lease is virtually identical
to the lease provision in the Bank of New York case which the
Court of Appeals interpreted as constituting an affirmative
assumption by the purchaser of all the covenants and
obligations of the landlord. As the Court has previously
stated, this fact does not necessarily establish that the
Association is a party to the Commercial Lease under §
3607(a)(2) of the Act. It does show, however, that under the
common law of the state in which the transactions took place,
the Association, even though not a signatory to the Lease,
would be viewed as having taken over all the covenants and
obligations of the "Landlord" under the Lease.
This characterization of the transactions lends compelling
support to the conclusion that the Association should be
considered a party to the Commercial Lease. The Association is
at present carrying out all the obligations of Landlord under
the Lease. Aside from liabilities arising prior to conversion,
the Association has in all respects stepped into the shoes of
the Developer with regard to the Lease. Thus, common sense
dictates that the Association is now a party to the Lease, even
though the Association has not signed the Lease. In light of
the preceding analysis, the Court finds that the Lease is
"between" the Association and the Tenant in fulfillment of the
requirements of § 3607(a)(2) of the Act. Plaintiffs' motion for
summary judgment on the first count of the complaint is denied.
C. Motion for Summary Judgment on Count II
Plaintiffs allege in the second count of the complaint that
the statutory timeframe for termination of a lease pursuant to
the Act expired prior to the Association's vote to terminate
the Commercial Lease. Section 3607(b) of the Act permits
termination within two years of the end of "special
developer control," as defined at 15 U.S.C. § 3603(22), or the
time that the developer owns 25% or less of the cooperative
units, whichever occurs first. Plaintiffs argue that the
Developer has never possessed "special developer control" in
the case at bar, and that therefore the time for the
Association to terminate the Lease expired two years after
conversion, on December 15, 1988. See Complaint, ¶¶ 57-58.
Section 3603(22) of the Act defines "special developer
any right arising under State law, cooperative or
condominium instruments, the association's bylaws,
charter or articles of association or
incorporation, or power of attorney or similar
agreement, through which the developer may control
or direct the unit owners' association or its
executive board. A developer's right to exercise
the voting share allocated to any condominium or
cooperative unit which he owns is not deemed a
right of special developer control if the voting
share allocated to that condominium or cooperative
unit is the same voting share as would be
allocated to the same condominium or cooperative
unit were that unit owned by any other unit owner
at that time.
As with other sections of the Act, there is scant case law on
the precise definition of the key operative language of the
provision — to wit, "through which the developer may control
or direct the unit owners' association or its executive board."
The Association argues that in the case at bar, the
individual proprietary leases, which constitute "cooperative or
condominium instruments" under § 3603(22), contain a manifold
grant of powers over the Association to the Developer. These
provisions allow the Developer to veto certain decisions made
by the Association, inter alia, to increase the number or
change the type of employees from those described in the
Offering Plan, to restructure or to increase the amount of the
indebtedness of the Association, or to make major capital
improvements or to levy assessments for such improvements or
repairs unless required by law. It is clear to the Court that
these retained powers allow the Developer to exercise
substantial control over the business affairs of the
Association. Without more specific guidance from Congress or
the courts, this Court must rule that such powers constitute
"special developer control" under the Act.*fn6 Plaintiffs'
motion for summary judgment on the second count of the
complaint is denied.
D. Motion for Summary Judgment on Count VII
Plaintiffs allege in the seventh count of the complaint that
the Association's use of proxies to conduct the vote concerning
termination of the Lease was not authorized by the Act, and
therefore the vote should be declared void. See Complaint, ¶¶
81, 84. Plaintiffs argue that at common law, there is no "right
on the part of a member of a stock corporation to vote by
proxy. That right is given by statute in New York." Plaintiffs'
Memorandum of Law, at 16 (quoting Dal-Tran Serv. Co. v. Fifth
Ave. Coach Lines, Inc., 14 A.D.2d 349, 353, 220 N.Y.S.2d 549,
554 (1st Dep't 1961) (citations omitted)).
The Court has already qualified the applicability of New York
State law when employed to interpret the provisions of the Act.
Given the wide acceptance of the use of proxies generally, and
the absence of any provisions in the Act restricting the
methods by which unitholder votes should be conducted, the
Court sees no reason to invalidate the vote previously taken by
the Association. There is no evidence or suggestion that the
use of proxies in the case at bar was improper or coercive, but
rather was solely for the sake of administrative convenience.
Plaintiffs' motion for summary judgment on count seven of the
complaint is denied.
Plaintiffs' motions for summary judgment on counts one, two,
and seven of the
complaint are denied. The parties are instructed to appear at
a pre-trial conference before the Court on Friday, September
14, 1990, at 10:30 a.m., in Courtroom 36 of the United States
Courthouse, New York, New York.