Landlord/Shareholder Must Pay to Legalize Loft Units

Facts: In 1975, several shareholders bought a five-story loft building for their own occupancy by setting up a corporation and assigning 200 shares of stock to themselves. The biggest shareholder got 134 shares of stock for commercial space on the ground and basement floors and second-floor residential space. The other shareholders got 22 shares each for the residential space on the third, fourth, and fifth floors. After the Loft Law was passed in 1982, the residential shareholders wanted to legalize the loft building by having each shareholder pay his proportionate share of the cost to do so. The commercial shareholder wouldn't cooperate, since he had a much greater number of shares than the other four. The residential shareholders sued to force him to pay for the loft legalization. Court: Residential shareholders win. The commercial shareholder can't use the corporation's 75 percent stock vote requirement to get past the legitimate goal of legalizing the loft units. Strong public policy considerations require landlord to comply with the Loft Law. Landlord's articles of incorporation state that its purpose is to provide homes for the shareholders. And, since there's no shareholder agreement to the contrary, the commercial shareholder must pay a portion of costs equal to his proportionate share of stock in the co-op. Legal conversion of the loft units will enhance the building's market value and benefit all shareholders.

O'Flaherty v. Schwimmer: NYLJ, p. 27, col. 5 (7/15/93) (Sup. Ct. NY; Tom, J)