Q&A: The A-B-C-s of Sponsorship

We have a co-op building with 47 apartments. The original sponsor (say Owner A) established the co-op long ago. In 2012, he sold his ten apartments to Person B, then B sold them to C in 2013. As per the offering plan, Owner A is a sponsor. Person B said that he bought unsold shares from the sponsor so he will have the same legal rights as a sponsor, but person C didn't buy from Owner A. So can C also still say he is a sponsor? Ten of the 47 apartments are owned by C, who claim him as a sponsor, and 37 apartments are owned by individual shareholders. Eight of the 37 individual shareholders are not living in their apartments. They have rented their apartments for some time. And, so-called sponsor C rents his 10 apartments. Recently, the board of directors made a law requiring the owners of these eight individual apartments (who rent them) to pay an extra 15% of maintenance as a rental fee. Owner C claims that, as a 'sponsor,' he doesn't have to pay the extra 15% rental fee, even though he rents all of his 10 apartments. Our concern is that the board of directors made the law for the rental fee and it is applicable to ALL shareholders who rent their apartments even sponsors, alleged or otherwise. Please help us clarify this.

—Confused Co-op Owner

“There are two questions raised by the reader and the answers to both depend on the language contained within the co-op’s operating documents; that is the offering plan and its amendments, the proprietary lease and bylaws,” according to Attorney Bryan J. Mazzola, Esq., a partner with the Manhattan-based law firm of Cantor, Epstein and Mazzola, LLP.

“Specifically, the first question is whether Owner “C” is a holder of unsold shares. Based on the information supplied, the answer is maybe since Owner “C” did not purchase directly from the sponsor. In particular, we do not know the terms of the proprietary lease and offering plan which likely set forth those conditions to be met in order for someone to be considered a holder of unsold shares, such as if the person must be designated by the sponsor and the time frame for doing so. It would also be helpful to have Owner “C’s” sales contract to determine whether Owner “B” made any representations in compliance with the governing documents to properly convey unsold shares or to see if it perhaps it issued a disclaimer stating that the shares were not to be considered unsold.

“The second question is that, assuming that Owner “C” is a bona fide holder of unsold shares, is he or she entitled to an exemption from paying the sublet fee. Again to answer this, one must look to the co-op’s proprietary lease and bylaws to determine in the first instance, whether the rental fee is authorized and if it wasn’t, whether the co-op’s board properly enacted an amendment to permit it to levy the fee. Additionally, assuming that the fee was authorized, holders of unsold shares are often given certain benefits within proprietary leases such as being exempt from rental fees. If the documents here do provide that benefit and if Owner “C” is a holder of unsold shares, than they would not need to pay the fee, even if all other owners were required to do so.”     

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