CO-OP FEES: THE HABITAT SURVEY

What Fees Can You Charge?

Despite how it seems, you can't charge for everything. Mazel, a partner at Hankin & Mazel, says a co-op's proprietary lease will indicate whether it can legally impose fees, and for what and how much. Most leases also have some general language that indicates that corporations can be reimbursed for "reasonable administrative fees," notes Mazel, who adds: "That's the catchall. Everything is an administrative fee."

But co-op boards also have to watch out for the word "reasonable." "If you have a move-in/move-out fee that was $500, and you want to make it $5,000, I'll tell the board, 'You have to be careful,'" Mazel says. In a lawsuit, the courts would probably rule against such an excessive fee.

What's a reasonable increase? At 135 Willow Owners Corporation, a 110-unit co-op in Brooklyn Heights, fees include these for moving in and moving out ($250) and for a bike room ($10 per month. Last year, the co-op board increased the transfer fee (a.k.a. the "flip tax") from $5 per share to $10 per share. Based on prevailing market rates, that could be considered justifiable.

In making the change, however, the corporation also stipulated that it could use up to 50 percent of the flip tax for the operating budget — something Michael Wolfe, president of Midboro Management, calls "fiscal suicide." (See our accompanying story, "The Co-op Flip Tax: Latest Findings from the 2011 Habitat Survey.") Fortunately, says board secretary Karan Spanard, the co-op — which sees about $120,000 annually from fees, most of that from parking, out of a $1.35 million budget — takes care not to budget against them.

Who Gets the Fee?

One of the issues about fees is who gets them. At 127-129-131 West 96th Street Owners Corporation, in Manhattan, some fees — like the storage, sublet, transfer and bike and laundry-room fees — are paid to the corporation. Others — like the purchase, alteration application, and refinancing fees — go to the managing agent to compensate for his or her extra work.

This can be a source of friction, says Ruth Shoenthal, board treasurer at the 128-unit building. Over the past few years the amount of the fee for refinancing has increased from about $350 to as high as $675, depending on the type of loan. "I found out about this when I was starting a refinancing just recently, and I was not pleased," she notes. "We feel our fees are extremely high. We want to work with them to see what we can do."

A few years ago, the board increased the amount for late fees for maintenance payments. Shoenthal says the lease stipulates "reasonable" late fees, so the board had the latitude to increase them on its own from $25 a month to fees that rise from $50 to $250 depending on the number of infractions. In all, the money the corporation expects to earn from fees for 2011 is about $32,500. "That's out of a budget of more than $1 million, so you can see it's really de minimus," she says.

Although boards should not rely on fees, such income can be a welcome addition. Cynthia Graffeo, a management executive of Buchbinder & Warren, reports that one of the buildings in her portfolio has a sublet fee of $12 per share. "If there are two or more sublets, it can be a good amount of money," she says. Another building has an administrative fee of $2,000 for transferring a unit. "That co-op has 24 apartments, and last year there were three unit transfers. That's a substantial amount of money."

Best Way to Impose Fees

How does a co-op board institute fees? Amending the proprietary lease is the "gold standard," says attorney Marcie Waterman Murray, a principal in Tane, Waterman & Wurtzel. But Murray says she could envision a situation where a board might not want to go to possibly reluctant shareholders. In that case, you could amend the bylaws — a move that requires only a majority board vote.

Next page: The most- and least-popular fees >>