Passing Legal Fees to Rule-Breakers Can Be an Effective Sanction

Bruce Cholst, Partner, Herrick

Having a provision in your proprietary lease or condo bylaws that authorizes the recovery of legal fees from shareholders or unit-owners allows you to use this economic sanction to get recalcitrant residents to comply with the rules, but it comes with risks.

Beware the backfire. What happens when a shareholder or a unit-owner calls your bluff and says, “Bring it on”? Then you really have a dilemma. Either you pursue the litigation, carry through on your threat, and seek legal fees in conjunction with that litigation, or you cave. And if you back down, then you are going to lose credibility with that recalcitrant resident who is going to consider your board to be a paper tiger.

The court’s thinking. It’s a very difficult task to actually get legal fees because the courts and the state Legislature here in New York have a real hostility toward allowing one party to recover its own legal fees. The attitude is each party should bear its own legal costs. 

Provision details. In 90% of the proprietary leases I’ve seen, the standard provision says you can only recover attorney’s fees in connection with a default of the proprietary lease. So it has to be properly drafted in order to work outside of this scenario.

For the ploy to work. Once in court, the most important thing of all is that you are the prevailing party in your litigation in order to recover any legal fees. Know the merits of your case very, very well, and make sure that you can reasonably expect to win on what you’re seeking so that you can be the prevailing party.