Departmental Divide on Shareholder Family Occupancy
By Adam Leitman Bailey and Dov Treiman
December 12, 2017
Adam Leitman Bailey and Dov Treiman discuss a split among the First and Second Department Appellate Divisions on their interpretations of a common clause in proprietary leases for cooperative apartments relating to whether a proprietary lessee must live in the apartment simultaneously with a close family member for the family member’s occupancy to be legal under the proprietary lease.
The Appellate Divisions for the First and Second Department are split on their interpretations of a common clause in proprietary leases for cooperative apartments. The clause speaks to the issue of whether a proprietary lessee must live in the apartment simultaneously with a close family member for the family member’s occupancy to be legal under the proprietary lease. The First Department says the clause means that cohabitation is required for the family member to be present; the Second Department holds that no cohabitation is necessary.
A representative example of the kind of clause the Departments are disagreeing over reads as follows:
the Lessee shall not, without the written consent of the Lessor on such conditions as Lessor may prescribe, occupy or use the apartment or permit the same or any part hereof to be occupied or used for any purpose other than as a private dwelling for the Lessee and Lessee’s spouse, their children, grandchildren, parents, grand-parents, brother and sisters and domestic employees…
Mastering Two Ideas
The legal question raised here stands at the intersection of two distinct but distinctly related concepts, illegal subletting and unauthorized occupancy. Sloppy analysis conflates the two, fails to perceive the highly significant differences, and lumps it all together under the title “illegal subletting.” Two statutes highlight the differences between the two ideas: Real Property Law §226-b regulating a tenant’s right to sublet and Real Property Law §235-f regulating a tenant’s right to override occupancy restrictions in leases. §226-b recognizes that money flowing to the tenant from a subtenant is the essence of the landlord/tenant or sublandlord/subtenant relationship those parties are establishing. §235-f, on the other hand, looks entirely at the number of persons who are to be occupying the rented premises and what relationships they bear to the tenant of record.
The law, however, takes a pragmatic look at human behavior. It understands that a landlord can, with any kind of diligence, readily observe who is living in a particular apartment. However, seeing cash change hands is far more difficult to achieve. While in the overwhelming bulk of cases, an illegal sublet is also an unauthorized occupancy, there are unauthorized occupancies that are not necessarily illegal sublets.
For example, consider RPL §235-f(b)(3)’s authorization for “occupancy by the tenant, immediate family of the tenant, one additional occupant, and dependent children of the occupant provided that the tenant or the tenant’s spouse occupies the premises as his primary residence.” What if the tenant chooses her boyfriend and her boyfriend’s brother as additional occupants? Since the brother is not a child of the tenant of record, this is an objectionable tenancy, even though the brother is not paying a nickel to the tenant. This is an “unauthorized occupancy,” not an illegal sublet.
However, what if the boyfriend’s brother starts living there in the absence of the tenant of record? The landlord still has not seen cash passing hands, but the case law itself will presume that cash is, in fact, changing hands and will hold this to be an illegal sublet. Thus, the case law effects the bridge from one theoretical framework to the other, presuming a sublet, when the only direct evidence the landlord has is that of an unauthorized occupancy. However, that is more a leap than a bridge. The two concepts need to be held distinct.
Based on that analysis, therefore, we turn to the proprietary lease clause in question. We see that it is not a clause about subletting; it is about unauthorized occupancy, only about unauthorized occupancy. However, when analyzing that clause, unlike the RPL §235-f discussion stated above, we are dealing with the tenant’s actual family. In such cases, the presumption that funds are changing hands is no less strong in the law, but less strong in the actual conduct of human beings.
Construing The Clause
In 221 Middle Neck Owners v. Paris, (55 N.Y.S.3d 885, 2017 N.Y. Slip Op. 27183 (Dist. Ct. Nass. Co.), the co-op alleged that a tenant-shareholder violated the terms of the proprietary lease by unlawfully subletting the premises to her daughter. The co-op argued that the above-mentioned lease provision required the tenant-shareholder to occupy the premises contemporaneously with her daughter. Since the tenant-shareholder failed to do so, the Board contended that the violation of the restrictive use clause was equivalent to an illegal sublet. The court disagreed with the co-op and held that the language in the provision did not expressly prohibit one of the listed family members, such as a child, from residing in the apartment while the tenant-shareholder lived elsewhere. The court reasoned that the language is ambiguous and does not specifically require that consent be obtained for the type of arrangement that was at issue in the case. In so ruling, the court relied on precedent from the Second Department that has consistently interpreted the above provision as being ambiguous.
We note that the daughter in Middle Neck specifically argued that there was no cash changing hands between her and her parents. The co-op had sued for illegal sublet and she responded specifically that the only real question was whether her occupancy was unauthorized. By finding the proprietary lease clause ambiguous as to whether such an occupancy was or was not permitted, the court eluded the question of whether the petition would have to be dismissed for failure to prove actual subletting—payments to the proprietary lessee.
The First Department
In 2002, the First Department issued a ruling of first impression. In 445/86 Owners v. Haydon, (300 A.D.2d 87, 751 N.Y.S.2d 456 (1st Dept. 2002)), a residential cooperative sought to recover sublet fees against a tenant-shareholder after it discovered that the tenant’s mother-in-law lived in the apartment without the tenant being present. With a proprietary lease provision like that we are discussing, the First Department held that the lease did not permit the tenant’s mother-in-law to live in the apartment without the tenant also living there at the same time. The Court reasoned that the provision was meant to be construed that occupancy is to be permitted by the listed persons other than the lessee only if the lessee maintains a concurrent occupancy. The court opined that the:
meaning is manifested by a grammatical structure that does not differentiate between the lessee’s family and domestic employees i.e., to hold that paragraph 14 permits defendant’s mother-in-law to live in the apartment without defendant also living there at the same time would permit defendant’s domestic employee to live in the apartment without defendant also living there at the same time.” The court added “this is a patently unintended and absurd result.
One wonders why “this is a patently unintended and absurd result.” Consider a high-end cooperative used by the super wealthy as a New York pied-á-terre. In such buildings, the owners may leave staff in New York to tend to the apartment while the owners jet all over the world. Such buildings already no doubt have massive security systems, including at the very least, doormen. So, the advantage of insisting that owners actually be present in the building is entirely absent. In such a building, it would be entirely natural that a proprietary lease would allow the staff to live there in the absence of the owners. Such buildings may be unusual, but they are not absurd.
In 2006, the First Department reaffirmed this construction of the provision. In 230-79 Equity v. Frank, (50 Misc3d 144(A), 31 N.Y.S.3d 924 (1st Dept. 2006)). a cooperative alleged that a tenant-shareholder breached paragraph 14 of their proprietary lease by permitting her daughter to reside in the subject cooperative apartment while the tenant lived elsewhere. In adhering to its decision in Haydon, the court held that the tenant-shareholder breached the lease agreement. It reasoned that the language in pertinent clause only allows for a construction permitting occupancy by the listed persons other than the lessee when the proprietary lessee maintains his or her own concurrent occupancy.
The Second Department
The Second Department takes the opposite view. For example, in Wilson v. Valley Park Estates Owners, (301 A.D.2d 589, 754 N.Y.S.2d 315 (2003)), the tenant in a cooperative apartment brought an action seeking judgment declaring that he was in compliance with the terms of his proprietary lease. The cooperative argued that the shareholder’s daughter’s occupation of the apartment without the tenant-shareholder present violated the terms of the proprietary lease and amounted to an illegal sublet. The tenant-shareholder did not obtain consent from the board prior to allowing his daughter to reside in the cooperative apartment.
The Second Department held that the lease clause was ambiguous and does not expressly require that board approval be obtained for a tenant-shareholder’s family member to reside in an apartment while the tenant-shareholder is not in residence. The court reasoned that the lease term did not expressly require that consent be obtained for the type of arrangement at issue in the case and thus, triable issues of fact were raised as to whether the cooperative apartment owner was in breach of the proprietary lease when his daughter and her fiancé resided in the apartment while he resided elsewhere. The court denied summary judgment.
However, one must question just what the issue of fact denying the motion was. There is no question as to what the proprietary lease said. There is no question that the daughter was living in the apartment in the absence of the proprietary lessee-parent. This was a case apparently ripe for summary judgment. With the court looking at it from the material issue of fact point of view, it completely eludes the question as to whether one can sue for illegal sublet where there clearly is no sublet going on, but only an unauthorized occupancy.
Both judicial departments’ analyses leave unanswered questions. It is probably true that the clause simply is too ambiguous to be a basis for eviction. Neither department considered the doctrine that a lease is normally construed against its landlord-drafter in the event of ambiguity. Under that view, the Second Department has the better side of the argument. But neither Department answers whether in such cases an unauthorized occupancy can be prosecuted as an illegal sublet, particularly where there is clear proof that the child is not paying the parent.
Regardless of these considerations, the split decisions between the First and Second Departments in interpreting the above-mentioned proprietary lease provision ripens this issue for review by the Court of Appeals.
 The First Department and Second Department agree on this principle. Kimmel v. Estate of Ling Kai K’Ung, 21 HCR 402A, NYLJ 8/6/93, 21:5 (AT1 1993); Carol Mgt. Corp. v. Britton, Jr., 20 HCR 639A, NYLJ 10/29/92, 26:5 (AT 2 & 11 1992).
 The tenant-shareholder did not seek to gain consent to sublet from the Board prior to allowing her daughter to occupy the subject premises.
 See also Barbizon Owners Corp. v. Chudick, 159 Misc.2d 1023, 607 N.Y.S.2d 880, (N.Y. City. Civ. Ct. 1994). (finding restrictive use clauses in a proprietary lease are enforced but strictly construed. An intention to restrict the manner of occupancy of use must be clearly and unequivocally expressed).
Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C. Dov A. Treiman is a partner at the firm. Thank you to Joshua Filsoof, law clerk and former extern and Summer Associate at Adam Leitman Bailey, P.C. in his third year at the Benjamin N. Cardozo School of Law School and extern Matthew Ross, in his third year of law school at the St. John’s University School of Law for their participation in preparing these materials.