Asked and AnsweredI am combining two adjacent apartments that I own and I want the co-op to issue one stock certificate for both apartments. There is an outstanding UCC lien against one of the apartments. The other apartment is owned free of any liens. Can the co-op object to the combination?
Boards can object to almost anything, provided that they are acting in good faith, under a concept of New York business corporation law called the “Business Judgment Rule.” The courts give co-op Boards wide berth in making decisions, so that the business of a co-op can be transacted without every decision being questioned needlessly. That being said, provided that the apartments have been legally combined with the consent of the Board and all sign-offs obtained, once the combination is completed, the Board should not object to combining the stock certificates for the combined apartments. Since there is an outstanding bank loan (and lien against the shares), the bank will need to be involved in the process as the stock and proprietary lease for that apartment are being held by the bank. A closing will have to take place in which the bank’s attorney presents the existing stock and lease for one of the apartments and receives the new stock and lease that covers the combined apartments. The bank will actually be getting additional collateral, as the stock certificate now covers the combined apartments with a significantly greater value. It’s possible that the bank might raise an objection, particularly, if the borrower’s financial condition has significantly changed for the worse, but in most cases, the bank will cooperate and will be happy to take the new collateral with increased value. Often, the combination of the apartments is an opportune time to refinance, so the bank is involved in the process from the beginning.