Most cooperative corporations (“co-ops”) issue House Rules which are generally adopted by the Co-Op Board and must be followed in addition to those obligations set forth in the Proprietary Lease. Co-op owners (or shareholders) are generally provided with a copy of the newly adopted House Rules by the managing agent. Many owners don’t realize that once adopted, it is difficult to challenge new House Rules. There are 2 main issues which limit owners’ ability to contest House Rules.

Statute of Limitations

If a shareholder has an objection or grievance related to the new House Rules, they must challenge the Rule in a court proceeding commenced pursuant to Article 78 of the New York Civil Practice Law and Rules (“CPLR”), but they only have a short period of time to bring an action. The Statute of Limitations applicable to such proceedings is governed by CPLR Section 217, which provides that the action must be commenced within four (4) months of when you knew (or should have known) that the Rule had been adopted.

The New York Appellate Division, First Department recently confirmed that the Statute of Limitations applicable to a proceeding brought pursuant to CPLR Article 78 does in fact apply to a challenge of new House Rules. [See Musey v. 425 East 86 Apartments Corp. 2017 NY Slip Op 06880 (1st Dep’t Oct. 3, 2017)].

In Musey, the shareholder immediately started corresponding with members of the Co-Op Board regarding his objection to the newly adopted House Rules as soon as he learned that the same had been adopted. However, Mr. Musey did not commence the action to challenge the new House Rules until nearly a year after he was made aware of the same. As such, the Court dismissed Mr. Musey’s claims as time barred by the applicable Statute of Limitations.

Burden of Proof

The burden of proof applied to a challenge made pursuant to CPLR Article 78 is a far more difficult standard than the usual “preponderance of the evidence” standard applicable to most civil actions. In determining such claims, the Court must consider whether the Co-Op Board acted arbitrarily, capriciously, in excess of its authority or did something contrary to law in adopting the new House Rules. That is a substantially higher burden of proof than the burden in the usual civil litigation.

If you own a cooperative apartment or think you might be interested in purchasing one, and would like to speak with one of our real estate attorneys, please contact us for a consultation.

Learn more about our real estate transactions and real estate litigation practices.