Paying Their Fair Share

When a co-op shareholder falls behind on monthly maintenance payments, the board can frequently find itself in a sticky situation. On the one hand, they don’t want to be heartless toward a neighbor; on the other, they have a fiduciary duty. What’s the best course of action?

Most co-op proprietary leases have a mechanism in place for collecting arrears. In many cases, the management company will send a letter after one missed payment. Some boards impose late fees, or negotiate a payment plan, or withhold amenities to induce delinquents to pay up. If there is a second missed payment, the board’s attorney will send a “notice to cure,” threatening to take the shareholder to housing court if arrears are not paid.

Since a co-op corporation has the first lien on apartments, the board has the power to evict the delinquent shareholder for breach of the proprietary lease. With this in mind, some co-op attorneys notify the shareholder’s lender of impending legal action, hoping that the lender will pay the arrears to protect the loan’s collateral.

Peter von Simson, chief executive officer of New Bedford Management, recommends an alternative to having the co-op’s general counsel pursue arrears. “We recommend to boards that they hire a different law firm that specializes in landlord-tenant cases,” Von Simson says. “We’ve found we get a better product from both sides. The co-op’s general counsel doesn’t have a ton of time. Arrears can get pushed to the bottom of the list so they drag out longer.” For landlord-tenant lawyers, on the other hand, the job is much more tightly focused. “L-T lawyers are always at the courthouse,” Von Simson says. “They don’t cut deals, they go by the book. An L-T lawyer is continuously pushing forward an arrears case until it’s resolved. And they’re always providing timely updates because that’s all they do. It’s a different skill set.”

Von Simson stresses that co-op boards should view housing court as a last resort – and that there are proven ways to avoid going there. “Good protocols make good neighbors,” he says. “Everyone in the co-op should know that, no matter who you are, if you don’t pay your maintenance, the matter is going to court.” In the end, he says, it all comes down to an unyielding fact of life: “Everyone has to pay their fair share for a co-op to work.”