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Adam Leitman Bailey, P.C. Wins Trial Protecting Shareholder Who Claimed Holder of Unsold Shares Status Against Cooperative Board’s Illegal Sublet Proceeding

Adam Leitman Bailey, P.C. was recently called upon to represent a shareholder against a cooperative board’s holdover proceeding brought on the grounds of an alleged illegal sublet of her apartment.

Adam Leitman Bailey, P.C. prevailed after a three day trial.

In 2008, when the client saw an advertisement for a cooperative apartment for sale in Brooklyn, she was excited to learn from the seller’s broker that the apartment was being sold directly by the sponsor. This meant that if she purchased it for investment purposes, she would be permitted to rent out the apartment without the need to seek board approval and with no obligation to pay sublet fees to the board. The client represented to the seller’s broker that the purchase was an investment. The broker represented that, as long as neither the client nor a family member physically moved into the apartment, she would have an unfettered right to sublet it.

Just days after the closing, the seller’s broker personally located a tenant for the apartment and helped the client to execute a lease with the tenant to occupy the apartment.

Neither the client nor her family ever moved into the apartment and the client’s tenant resided there for two years without incident. Suddenly, the client received a notice to cure from the cooperative board. The board accused her of illegally subletting the apartment without seeking or obtaining board approval and of failing to pay sublet fees to the board.

The team at Adam Leitman Bailey, P.C. faced an extremely uphill battle as the board presented documentation purporting to evidence the client’s representations that she or her daughter would reside in the apartment. Adam Leitman Bailey, P.C. immediately went to work to research and investigate all of the facts, to prepare strong opposition to the board’s claims, and to prove that the shareholder was the holder of unsold shares, which would entitle her to unrestricted subletting rights. In addition, knowing the unsold shares question was close, Adam Leitman Bailey, P.C. searched for alternative defenses to the illegal sublet proceeding. The team learned that upon receiving the notice to cure, and prior to the commencement of the holdover action, the client and her transactional attorney extensively negotiated the issues with the board. The team argued that the board’s negotiation with the tenant, which included a request for the tenant to submit a sublet application, extended the tenant’s time to cure the improper sublet, if any existed.

As the subtenant had vacated the apartment, the team also focused on the board’s efforts to prove that the sublet was not timely cured. At trial, Adam Leitman Bailey, P.C. aggressively cross-examined the board’s witnesses. Using the inconsistencies in their testimony regarding alleged discovery and duration of the alleged illegal sublet and by unraveling the witnesses’ attempts to downplay the representations that the board’s broker made in connection with the sale of the apartment, the team destroyed the witnesses’ credibility. Then, notwithstanding presenting extensive legal arguments regarding the client’s unrestricted rights to sublet, the team argued that the board failed to meet its burden of proof to prove that the client failed timely to cure.

Adam Leitman Bailey, P.C. also presented evidence to demonstrate a defense of laches—which can prevent assertion of claims after an unreasonable and inexcusable delay that results in prejudice to an opposing party—by poking holes in the board super’s testimony that he allegedly discovered the sublet two years after the client purchased the apartment.

After reviewing the evidence presented and Adam Leitman Bailey, P.C.’s opposition to the board’s case, the judge found in favor of Adam Leitman Bailey, P.C.’s client and dismissed the holdover proceeding.

Christopher Halligan and Vladimir Mironenko of Adam Leitman Bailey, P.C. represented the cooperative shareholder.

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