Podcasts

Cooperative Housing: Defining the Shareholder-Cooperative Corporation Relationship

By Brian M. Rader

There is no confusion regarding the distinction between the cooperative form of ownership and alternative forms of real property ownership. The cooperative form of ownership requires an owner (hereinafter, the 'shareholder') to purchase shares of stock in the cooperative corporation which then permits the shareholder to occupy a dwelling pursuant to a long-term proprietary lease with the cooperative corporation. Indeed, this is contrary to the condominium form of ownership where title to a 'unit' vests in each individual owner. Although the distinction between the cooperative form of ownership and other forms of real property ownership is clear, the remedies and how a cooperative corporation may enforce its legal rights has often led to confusion and uncertainty.      
 

Logically, one may conclude that the relationship between a shareholder and the cooperative corporation is synonymous with the landlord-tenant relationship because the shareholder occupies the dwelling pursuant to a lease. However, New Jersey's judiciary has rejected that theory, finding that the relationship between a shareholder and a cooperative corporation is unique and unlike the landlord-tenant relationship.  For example, a cooperative corporation is not entitled to a summary eviction proceeding. Plaza Road Co-op Inc v. Finn, 201 N.J. Super. 174 (App. Div. 1985).  Interestingly, however, the Plaza Road court further explained that although the shareholder-cooperator corporation relationship is not that of a landlord-tenant relationship, where the cooperator corporation relies on tenancy-like provisions to seek ejectment or possession, a shareholder may raise tenancy-like defenses such as habitability.  
 

Further, in In Re Robertson, 147 B.R. 358 (Bkrtcy. D.N.J. 1992), the cooperative corporation argued that failure to pay maintenance fees is synonymous to a tenant's failure to pay rent and that the shareholder's lease should be terminated for failure to pay maintenance fees.  The court rejected that argument regardless of a supporting lease provision and declared that ejectment is an inappropriate remedy for failure to pay maintenance.  In Harrison Park Owners, Inc v. Dixon, 254 N.J. Super. 605 (App. Div. 1992), the court relied on the reasoning adopted in Plaza Road and further opined, but did not rule, that a money judgment may adequately protect the cooperative corporation and might be a more equitable solution than a forfeiture of property.  The Harrison Park court also confirmed the reasoning previously set forth in Plaza Road with respect to a shareholder's ability to assert tenancy-like defenses where a cooperator corporation relies on a tenancy-like provision to seek ejectment or possession. 
 

How courts have defined the shareholder-cooperator corporation relationship has had far reaching implications with regard to remedies a cooperator corporation may seek to enforce its legal rights against a shareholder. New Jersey courts have confirmed that the shareholder-cooperator corporation relationship is unlike the landlord-tenant relationship and that a summary eviction proceeding is inappropriate in this context. Although New Jersey courts have precluded cooperative corporations from seeking ejectment or possession through a summary eviction proceeding, courts have not precluded cooperative corporations from seeking such relief through a plenary proceeding. 

Full post as published by New Jersey Law Blog on March 29, 2011 (boomark / email).