Residential statute no go for commercial condo - General Business Law Section 352-e 2-d

Real Estate Weekly, June 3, 1992 by Sherwin Belkin

Recent litigation between the owner of a commercial condominium and the condominium's Board of Managers concerning the calculation of common charges brought into question the applicability of General Business Law Section 352-e(2-d) to a commercial condominium owner that defaults in the payments of common charges. The statute provides that the Condominium Board may serve notice upon a "non-purchasing tenant" that all rental payments due to such tenant are to be made payable to the Condominium Association.

In Board of Managers of the Seaport South Condominium vs. 130 Water Street Associates. L.P.. et al., the owner of a commercial condominium (which contained six separate commercial tenants) became embroiled in a dispute with the Condominium Board regarding the methodology of calculating the common charges applicable to the commercial condominium. During the pendency of this dispute, the commercial condominium owner opted not to pay the common charges until the dispute was resolved.

Predicated upon the commercial condo owner's failure to pay the common charges, the Condominium Board served a notice upon the condo owner's six separate commercial tenants pursuant to General Business Law Section 352-e(2-d), notifying them of the condo owner's default and demanding that all future rent payments be made payable, not to the condo owner, but directly to the condominium itself.

Howard Wenig, my partner in Belkin Burden Wenig & Goldman, representing the commercial condominium owner, brought on an order to show cause in New York State Supreme Court seeking an injunction for the purpose of compelling the Condominium to retract its notice. The condo owner asserted that the statute was limited in its applicability to owners and tenants of residential units. Accordingly, the condo owner asserted that the statute was completely irrelevant and inapplicable to it as owner of a commercial unit.

Justice David B. Saxe found that the statute defined a "non-occupying owner" as "the owner of a unit in a condominium who does not reside in the unit, when the unit is occupied by a non-purchasing tenant". Moreover, the statute defined a "nonpurchasing tenant" as "a person who has not purchased under the plan and who is a tenant entitled to possession at the time the plan was declared effective or a person to whom a dwelling unit is rented subsequent to the effective date."

Because the statute defined its own terms by virtue of residence, occupancy and dwelling, Justice Saxe held that:

"I conclude that the condominium could not properly rely on subsection 2-d of General Business Law Section 352-e to send notice to Associates' tenants demanding that their rent be paid directly to the condominium."

Predicated upon this legal analysis, Justice Saxe concluded that:

"Since the condominium had no right to proceed in the manner it did, Associates' motion for an injunction against this procedure is granted in all respects."

The Court's cogent analysis of the underlying statute demonstrates that notwithstanding the facial applicability of the statute to a given situation, only an in depth analysis of the terms and definitions contained in a statute can determine its applicability. In the instant case, the Board of Managers only examined the nature of the dispute [e.q., the default in payment of common charges], but failed to fully analyze the parties to whom the statute was truly applicable [e.g., to residential owners, not commercial owners]. As a result, the Board's improper course of action was enjoined.

Correction: My May 20, 1992 Column ("Court Upholds Sponsor's Sale of Garage") describes the Federal Action as having been commenced by the sponsor. In fact, the action was commenced by the new garage owner/operator which was represented by Richard Claman, a partner in Seiden Stempel Bennett & D' Agostino. The sponsor was brought into the action, as an additional party, by the defending cooperative.