Estate of Helen Del Terzo, Michael Del Terzo, and Julius Robert Del Terzo v. 33 Fifth Avenue Owners Corp.

Estate of Helen Del Terzo, Michael Del Terzo, and Julius Robert Del Terzo v. 33 Fifth Avenue Owners Corp.

Court of Appeals of the State of New York, December 20, 2016

Brothers Michael Del Terzo and Robert Del Terzo (together, the “Del Terzos”) inherited the shares to their deceased mother’s cooperative apartment and filed a joint application to have the shares transferred to them. Although Michael, a Pennsylvania resident, had enough income to pay the expenses, Robert did not. In their transfer application, Robert represented that he would pay the expenses on the apartment but that Michael would guarantee the payments. The apartment corporation’s Board of Directors (the “Board”) denied the transfer application on the grounds that Michael, as one of the applicants was not financially responsible as a potential shareholder. The Del Terzos commenced an action against the apartment corporation alleging that the Board breached the proprietary lease by unreasonably withholding its consent to the transfer. Both sides moved for summary judgment.

In granting summary judgment in favor of the Del Terzos, the lower court held that the Board acted unreasonably under the proprietary lease in rejecting the joint application and that since the brothers were co-applicants, the finances should have been considered together with both brothers being jointly and severally liable for the maintenance and other charges. The apartment corporation appealed the lower court’s decision.

The Appellate Division affirmed and held that the Board’s reliance on Robert’s finances as a reason to deny the application was improper. The Appellate Division further held that “by failing to consider the joint application as a whole, refusing to consider Michael’s offer to provide further guarantee of payment, and requiring that each co-applicant be individually financially qualified to meet the carrying expenses of the apartment, even though Michael alone, can easily afford them, defendant unreasonably withheld its consent to the transfer.” The Appellate Division also held that when, such as here, the language of the proprietary lease states that consent shall not unreasonably be withheld to an assignment of the lease and shares to a financially responsible member of the Lessee’s family, the “reasonableness” standard and not the business judgment rule applies. The apartment corporation appealed to the Court of Appeals.

The Court of Appeals affirmed the Appellate Division holding that the apartment corporation breached the “reasonableness” standard by unreasonably withholding consent to the transfer of shares allocated to the apartment.