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BLEECKER CHARLES v. 350 BLEECKER STREET APARTMENT

October 4, 2001

BLEECKER CHARLES COMPANY, PLAINTIFF.
v.
350 BLEECKER STREET APARTMENT CORPORATION, DEFENDANT, V. BLEECKER PARKING CORP., ADDITIONAL COUNTERCLAIM DEFENDANT.



The opinion of the court was delivered by: Lynch, District Judge.

OPINION AND ORDER

This action requires the interpretation of the Condominium and Cooperative Conversion Protection and Abuse Relief Act, 15 U.S.C. § 3601-3616 ("the Act"). Because the sponsor of a conversion of a building from rental to cooperative, generally the owner of the building, has effective control of the cooperative in the initial stages, and thus may have the opportunity to have the cooperative enter into long-term leases or other arrangements favorable to itself, the Act offers a cooperative corporation a limited time period, after the sponsor's control is reduced, during which it may terminate contractual commitments entered into while the sponsor dominated the cooperative.

In this case, the plaintiff Bleecker Charles Company ("the Sponsor") converted its building at 350 Bleecker Street to a cooperative in 1985, by conveying ownership in the building to the defendant 350 Bleecker Street Cooperative Corporation ("the Co-op"). At the same time the Co-op, all of whose units and related shares were at that time still owned by the Sponsor,*fn1 leased the ground-floor commercial space and underground garage back to the Sponsor for 75 years.*fn2 It is not for this Court to evaluate the fairness of the terms of the lease.*fn3 Suffice to say that the Act is intended to deal with the potential for self-dealing inherent in the situation, and that the lease terms are sufficiently favorable to the Sponsor that the Co-op in 2000 sought to invoke the Act's terms and terminate the lease.

Under the Act, however, such a termination is only permitted within a two-year "window" beginning (so far as this case is concerned) no later than the date on which the Sponsor owned no more than 25 per cent of "the units in the conversion project." 15 U.S.C. § 3607(b)(2). The plaintiff Sponsor brought this action for declaratory and injunctive relief, asking the Court to hold the Co-op's attempted termination of the lease invalid because, among other reasons, the attempt to terminate the lease in 2000 came too late — the Sponsor's share of the total units having dropped below 25%, according to its calculations, no later than October 16, 1997. The Co-op rejects this analysis, and seeks by counterclaim a declaration that the lease is invalid, arguing that the Sponsor owned more than 25% of the units until at least November 5, 1998. Both plaintiff Sponsor (joined by the sublessee of the garage as additional counterclaim defendant) and the defendant Co-op have moved for summary judgment, each arguing that on the undisputed facts about the ownership of various units of the cooperative, its calculations better accord with the language and intent of the Act.

For the reasons that follow, summary judgment is granted for the plaintiff Sponsor.

Background*fn4

At the time of the conversion in 1985, the Sponsor owned all of the 137 apartment units in the building.*fn5 The Sponsor immediately began to sell the apartments, but because the conversion was made under a non-eviction plan, under which tenants in the building were permitted either to purchase their units or to remain as tenants under their existing leases and any applicable statutory tenure, the Sponsor retained ownership of more than 25% of the units, both parties agree, for more than a decade.

By October 16, 1997, the Sponsor had sold 103 of the original units, and retained title to only 34, or 24.8%. Thus, the Sponsor argues, by that date it owned less than 25% of the units in the building, and the two-year window for termination of its commercial lease opened. On this simple analysis, the window closed on October 16, 1999, and the effort to terminate the lease in 2000 was untimely.

The Co-op, however, disputes the Sponsor's calculations. First, it contends that the 25% calculation should be based not on the number of units (137) in the building at the time of conversion, but on the number of units that exist at the particular time the calculation is made. It is not unusual for co-op apartments in Manhattan buildings to be combined to make larger living spaces, with approval of the co-op, for example, a resident may purchase an adjoining apartment and combine the two into a single larger residence. (It is less common, but equally possible, for a large apartment to be subdivided, and sold as two separate, smaller apartments to two new owners.) Thus, the number of separate living spaces (and therefore, the Co-op argues, the number of "units") in the building can change over time. Putting aside for the moment the details of the various transformations that have occurred in the building in question since 1985, the Co-op contends that the number of units in 1997 was less than 137, and that based on the reduced number of extant units, the Sponsor continued to own more than 25% of the units (and the window for termination of the garage lease therefore did not open) until November 5, 1998, making the Co-op's action timely.

Second, the Co-op argues that even using 137 units as a base, the Sponsor's calculation does not include two units that were sold to persons associated in some way with the Sponsor. The Co-op contends that these units should be attributed to the Sponsor, and such attribution would also raise the Sponsor's percentage ownership above 25% until a date late enough to make the Co-op's termination of the garage lease effective.

The issue before the Court, then, is to determine how the 25% calculation should properly be made under the provisions of the Act.

Discussion

For purposes of these motions, the parties agree that the garage lease at issue in this case meets the requirements of 15 U.S.C. § 3607(a) and is therefore subject to termination pursuant to the Act. (See Pl. mem. at 11, n. 5.) The Act provides, however, that any such termination "may occur only during the two-year period beginning on the date on which . . . the developer owns 25 per centum or less of the units in the conversion project." 15 U.S.C. § 3607(b)(2) ...


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