Daily Development for
Tuesday, August 15, 2000
By: Patrick A. Randolph,
Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu
CONDOMINIUMS; CONVERSIONS;
FEDERAL CONVERSION PROTECTION ACT OF 1980: Where developer retains rights to
veto changes in the organic documents of an association resulting from a conversion,
the developer will be viewed as remaining "in control" of = the property,
and consequently the period following developer control, within which the
association can reject contracts with the developer = will be extended until.
Darnet Realty Associates
LLC v. 136 East 56th Street Owners, Inc., ___F.3d ____, 2000 WL 63387 (2ndCir.
(N.Y.))
The Court here examined
the issue of "special developer control" under the Condominium and
Cooperative Conversion Protection and Abuse Relief Act of 1980 (the
"Act"), 15 U.S.C. =A736013616. The court held that the end of
"special developer control period," which opened a statutory two year
window for terminating "sweetheart" lease arrangements and self
dealing contracts, did not occur when the developer's ownership share fell
below the 25% level, one of the tests under the Act, because in this case the
developer retained veto powers that permitted it to exercise control "in such
a way as to retain significant clout" independent of direct control over
the Board.
In particular, the
developer retained the right to veto any change in = the certificate of
incorporation or the bylaws as long as the developer = held even one share in
the owners' corporation. This structure, the court noted, permitted the
developer to block any amendments to the super majority voting or quorum
requirements that governed certain business matters of the owners' corporation.
In this manner, the developer maintained de facto control over the operation of
that corporation. = Under this analysis the "special developer
control" extended beyond the time when the developer maintained it had
ended, resulting in the later = notice being timely.
The other issue examined
by the court was whether the parking garage was "property serving"
the unit owners under the Act, even though it = was not exclusively for the use
of those owners. Despite this fact, the = garage was a service that the unit
owners might reasonably expect as an essential adjunct to their apartments. In
addition, the court held = that a parking garage is property serving the unit
owners whether or not there are unit owner preferences for spaces in the
garage.
Comment: As the editor,
prior to this case, had never heard of this = federal law governing condominium
and cooperative conversions, the editor is hard pressed to claim any expertise
justifying a comment, except to = note that undoubtedly other attorneys faced
with their first inquiry = concerning such conversions might not think that
this is a matter in which federal law is likely to have a significant say. Such
attorneys might be = wrong.
Readers are urged to respond, comment, and argue with the daily
development or the editor's comments about it.
Items in the Daily Development section generally are extracted from the
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