LLCs Do Not Have Families

LLCs Do Not Have Families

      In a recent decision by a trial court in New York, it was determined that an LLC does not have a family. Bellstell 7 Park Avenue LLC v. Seven Park Avenue Corp., 2019 N.Y. Slip Op. 29402, 2019 WL 7421760 (Sup. Ct. New York County Dec. 23, 2019). 

      This dispute arose out of the characterization of certain unsold shares in a housing cooperative. The owner of “unsold shares” may sublet the property or assign the lease without the requirement of the approval of the cooperative’s Board of Directors or other shareholders. Rather, only the building’s managing agent’s approval is required. This case involved the question of whether the shares related to a particular unit would be characterized as unsold. 

      Bellstell, holding all of the unsold shares of in the cooperative, is a New York limited liability company for which the sole member is a New York corporation. That New York corporation is in turn owned by an Italian corporation named Edilverde e Beni Internazionali S.p.A. In November 2015, with the approval of the building’s managing agent, Bellstell sublet one of its apartments to Ciro Campagnoli. Campagnoli holds a 50% contingent remainder interest in Edilverde.

      Under the lease agreement, unsold shares remain in that category until “the holder of such shares (or a member of his family) becomes a bona fide occupant of the apartment.” 2019 WL 7421760, *2. Bellstell would assert, in effect, that the “member of his family” language could never apply to it as it is only applicable when applied to natural persons. On the other side of that coin, an LLC or other business entity does not have family members, and therefore the proviso is inapplicable when it is the holder of the unsold shares. Conversely, 7 Park Avenue would assert that because Campagnoli is a principal of Bellstell’s ultimate owner and a member of the family that ultimately controls it, he should be treated as a member of Bellstell’s family.

      Rejecting the argument of Seven Park Avenue, the court wrote: 

Put simply, this court sees no principled or practical means of defining when an individual’s ties to an LLC would suffice to make them a “family member” of the LLC for purposes of determining when the individual’s occupancy of an apartment strips the apartment’s shares of unsold-share status under the lease at issue here. The court therefore concludes that as a matter of law, the only reasonable reading of “member of his family” in ¶ 38(b) of the lease is that this language does not encompass individuals connected to LLCs or corporations that hold unsold shares. Id., *4 (footnote omitted).