## Facts

- A 20-story Manhattan building with 116 apartments and commercial spaces (including stores, a restaurant, and a parking garage) was converted from rental property to cooperative ownership.
- During the conversion, while the sponsor controlled the cooperative board, the cooperative executed a 99-year master lease leasing the building’s commercial property back to the sponsor.
- After shareholders later gained control of the cooperative, asbestos was discovered, including in the garage.
- The cooperative and sponsor entered a board-approved asbestos-abatement agreement that acknowledged and “confirmed” the master lease; the agreement was not submitted to shareholders for a vote.
- The cooperative’s shareholders then voted by the statutory two-thirds margin to terminate the garage portion of the master lease under § 3607 of the Condominium and Cooperative Abuse Relief Act of 1980, 15 U.S.C. §§ 3601–3616.
- The sponsor sued for a declaration that the termination was invalid, arguing the cooperative had waived the § 3607 termination right through the asbestos agreement; the cooperative defended the termination and sought attorneys’ fees.

## Issues

1. Whether the § 3607 right to terminate a self-dealing lease is held by unit owners/shareholders or by the cooperative corporation acting through its board, and who may waive that right.
2. Whether a board-approved agreement acknowledging a master lease can ratify the lease and waive shareholders’ later exercise of the § 3607 termination right.
3. Whether the cooperative was entitled to attorneys’ fees under the Abuse Relief Act after prevailing on the validity of termination.

## Decision

- The Second Circuit affirmed the district court’s judgment upholding termination of the garage portion of the master lease.
- The court held that § 3607 vests the termination power in unit owners/shareholders, not the cooperative board, and the board could not waive it without an owner vote.
- The asbestos-abatement agreement did not constitute a valid waiver because it was not approved by the unit owners in the statutorily required manner.
- The court affirmed denial of attorneys’ fees, concluding the sponsor’s action raised a nonfrivolous statutory question and did not justify fee shifting.

## Legal Principles

- The § 3607 termination right for sponsor-created self-dealing leases is a statutory right held by unit owners/shareholders and exercised through the supermajority vote specified by Congress.
- A cooperative board lacks authority to surrender or waive unit owners’ § 3607 termination right through ordinary board action or contractual “ratification” absent statutorily compliant owner approval.
- Attorneys’ fees under the Abuse Relief Act are not warranted where the losing party’s claim presents a serious, nonfrivolous dispute and lacks indicia of bad faith.

## Conclusion

The court held that § 3607 protects cooperative unit owners by placing the power to terminate sponsor-era self-dealing leases in the owners’ hands; a board-level agreement acknowledging the lease could not waive that protection, and the owners’ supermajority vote validly terminated the garage lease, with no fee award warranted.


181 E. 73rd St. Co. v. 181 E. 73rd Tenants Corp., 954 F.2d 45 (2d Cir. 1992)