Time To Get Tough

Check the calendar. Management should be very diligent about checking for timely payments at the beginning of the month. Once a shareholder is five days late, the board has two potential paths. The first is to communicate with the shareholder to see what’s going on and give him or her some time to catch up. The second path is a legal one.

Time to cure. If the proprietary lease provides for a conditional limitation provision, that provision will spell out a time frame within which the shareholder can cure the default. Boards can get the litigation process started right away, or they may prefer to give the shareholder more time and see what the circumstances are before making a decision on how tough they want to be. To take it a step further, that same proprietary lease provision will spell out the time frame within which you must provide notice of termination. Or if the proprietary lease is silent as to a conditional limitation provision, then a nonpayment proceeding can be started. These rules require a five-day notice, followed by a 14-day rent demand. After that, the corporation can begin the nonpayment eviction proceeding.

Choose your poison. A quicker legal route is to begin a holdover proceeding. It’s quicker because it generates a court date much sooner than a plain nonpayment proceeding. Nine out of 10 times, holdover proceedings result in boards getting one of two remedies — a payment plan or payment, or an eviction. But these proceedings take a long time to litigate, which is why you need to be aggressive.