Dollars and Incensed

If you could look up "bylaws and proprietary lease" or "fiduciary responsibility" in the "jargon dictionary" of a board of directors of a cooperative or condominium, you'd find accurate, helpful, and familiar definitions. These are the tools, after all, by which a board uses its power. But look in the same imaginary volume for information on housing court and the definition you'd probably discover is: "The place where really difficult problems end up." What does a board have to do with it? "Hopefully," the board would answer, "as little as possible." But the real response is more complicated. Treating housing court like a wayward relative you rarely talk about and just try to ignore can be costly.

Why would you go to housing court? The majority of cooperatives and condominiums never do; but when you do — for such issues as non-payment of maintenance or common charges — you'll be sorry your lawyer is there if you aren't properly prepared. Litigation is often a no-win proposition. Even if a board wins, there are still attorney's fees — judgments don't always reward all the fees, more like 50 percent — and there will be the lingering taste of resentment. So, before a board sues, it may want to look at the step-by-step costs involved. Take, as an example, a typical case in which a tenant systematically refuses to pay maintenance.

There are numerous procedures to pass before the case gets to court and generally they are successful. Late fees, fines, and letters from the managing agent are the first wall of defense. A final demand for a remedy of the problem is also made. If these fail, the process goes to the attorney. Generally, reports David Epstein, managing director of Saparn Realty, once the lawyers get involved and start proceedings, most cases are resolved. It's typically the chronic non-payer case who makes it to court. So, after you've exhausted the non-legal methods, you have your lawyer start the steps leading to litigation.

Step 1: The 10-day Notice. Just to begin proceedings and have your lawyer send the first letter to the delinquent owner costs anywhere from $75 to $250, which may or may not include servicing and processing fees.

Step 2: The Petition. If Step 1 fails, the attorney moves onto a "notice of petition" followed by the actual petition, basically a document that states, "You had better do something about this problem or you could be evicted." Creating this document can cost $500 to $600. Filing it with the court is another $35. Once the owner answers the petition, a court date is set. "This is where it gets more expensive," notes Richard Walsh, an associate with Horing, Welikson & Rosen.

Step 3: Court. Depending on what type of firm the board is using the costs here may vary. For a firm that basically handles this type of case in bulk, there is usually a $100 appearance fee for the first hour and then the regular hourly rate goes into effect after that. Other firms get an hourly rate from the start, including in the charges the time it takes to get to court, the amount of time spent there, and the trip home, as well.

Depending on the firm, a manager's time can cost you, too. A manager may need to attend the court to testify to the accuracy of the records and answer any questions. Some charge, some don't. If there is a charge, it is usually an hourly rate, and can be anywhere from $75 to $100, according to Epstein. "If you are lucky and you are able to reach a settlement quickly, it may only be a few hours, but a lot of the time the opposing attorneys try to delay the proceedings and they can go on for three to four days and the manager can end up spending eight hours or more," notes Epstein.

Usually, adds Walsh, cases are solved by the first or second visit, meaning a few hours of work. A quick case may run about $1,000. However, the speed of the case depends on a number of variables:

How badly does the tenant want to fight?If you're up against a bruiser who is prepared to go the distance, the case can drag on for a month or more, costing upwards of $10,000 to $20,000.

How involved is the board? If someone who has the power to make decisions represents the board at court, the case is less likely to be adjourned, meaning fewer trips there and less money spent. "It will cost more if there is not a board rep there," says Walsh.
How prepared are you? A board that has planned for the case with the managing agent, has all the resolutions in place, and has the documentation ready at the very first court date makes it much more difficult for a judge to decide to delay the proceedings.

What about payback? A board must decide if it wants to fight to get attorney fees back. If it insists on them, then the board should expect longer litigation. The risk, besides not necessarily getting the full amount back, is that the shareholder is then also entitled to ask for fees, as well.

So, in the best-case scenario, boards are looking at spending no less than $2,000. In the worst case, it could be tens of thousands of dollars. Holdover cases, all those not involving non-payment issues (illegal sublets, pets, and construction) are even more expensive, says Walsh. If the tenant does not show up at a non-payment court date the board wins by default. But, in holdover cases, another court date must be scheduled. In addition, more evidence is often needed, witnesses need to testify, and investigations need to take place.

For example, Walsh recently helped a co-op board defend itself against a noise complaint. A supermarket on the first floor of the cooperative had a compressor in its basement that made noise. A tenant complained and sued, wanting an abatement. The board spent $10,000 investigating the problem and another $10,000 defending it. The sound experts they employed helped win the case, but none of that money was seen again.

The best way to save on costs, say experts, is to be prepared. What do you do then before you enter what most attorneys refer to as a "zoo-like" atmosphere, with people yelling and screaming at each other, over each other, and through each other?

Use the right tool. Make sure that the attorney you are using has experience with landlord/tenant litigation. Many co-op/condo law firms have departments that deal specifically with this.

Designate a board representative. "Housing court is one of the busiest courts. It's very time-restrictive," notes David Kuperberg, president of Cooper Square Realty. "Cases come up by the minute and the attorney may need to make split-second decisions. Having someone there who can make decisions helps. Otherwise cases often get adjourned." Judges also take note of the representative. It shows that the co-op is seriously interested in the case. The same can be said of attorneys. The squeaky wheel gets the grease, right? An attorney handling numerous cases is more likely to put out the extra effort on the one that is getting attention.

Stick to the facts. Have evidence, not just "he said/she said." Often the remedy the courts are being asked to look at is eviction. Judges are aware of this and therefore the evidence needs to be strong. Along the same lines, make sure all those Ts are crossed. Any minutes of meetings or resolutions involving the incident, any of these steps before the court, need to be done not as an informal poll, but by the book.

Know your power. The three instruments of a board's power are the bylaws, the proprietary lease, and the certificate of incorporation. Make sure they are all in synch, says Mitchell Kossoff, a partner with Kossoff, Alper & Unger. Often some have been updated but not all and a conflict may exist among them. By amending one instrument, a board may think it is giving itself greater power, but the power won't hold up in court. Substantively, the idea is right, but, procedurally, it's wrong.

The best advice remains to avoid going to housing court at all. "Litigation gets away from you and soon the issue becomes larger than what is really at stake," observes Luise Barrack, a partner with Rosenberg & Estis. "Try to work it out first."

"I try to avoid housing court if I can," admits Kossoff. "Much of the time a board hires an attorney that is like a mill. He's handling lots of cases. I find that not enough conversations with the tenant have happened to begin with. Your attorney can talk to you first, collect the facts, get a timetable, and let you know how similar cases have turned out. This isn't done often enough. I'm a big advocate of attempting everything else before going to housing court."