Co-op Boards Are “Unintentional Roadkill” of Tenant Protection Act

The state’s sweeping Housing Stability and Tenant Protection Act has inspired rejoicing by many renters and outrage among many landlords. Largely lost in the uproar is the little-noticed fact that the law has major implications for co-op boards, co-op shareholders, and unit-owners in condominiums. 

“Co-ops are unintentional roadkill in this blunderbuss legislation,” says Bruce Cholst, a shareholder at the law firm Anderson Kill. “I don’t think the legislature’s purpose was to hurt co-ops; it was to expand tenants’ rights. But co-ops got caught up in the dragnet because co-op boards are considered landlords.” 

There are two areas where the law radically changes the way co-op boards conduct their business. The first is a limit to the penalty for late payment of monthly maintenance, which has been a valuable tool for co-op boards. The new law limits late fees to $50 or 5 percent of monthly maintenance, whichever is less. 

“If the penalty is as trivial as $50, it’s almost silly,” says Eric Balber, a partner at the law firm Smith Gambrell & Russell. “This is going to invalidate every late charge in the city. The only remedy, if arrears start to creep up, is to send it to a lawyer for collection.” 

Cholst adds: “Obviously, this limitation does not facilitate timely payment of maintenance. However, boards should continue to assess late fees as permitted by law, and we recommend that, pending legislative or judicial clarification to the contrary, the late fees should be assessed monthly. Boards should also more carefully scrutinize purchasers’ financials at the time of admission, push banks to pick up shareholders’ arrears more aggressively, and move faster to commence nonpayment proceedings in Housing Court, which is now the mandatory forum for seeking payment of rent arrears.” 

Most notice and cure periods in summary proceedings in Housing Court have been materially extended, which will further delay collection of arrears. Tenants now have 30 days to cure defaults even after a determination against them in a summary proceeding. The previous limit was 10 days. 

A second radical change is in the eviction process. The new law will make it more expensive and time-consuming to evict residents who fail to pay their rent or maintenance or who otherwise breach the terms of the proprietary lease. Only maintenance (including assessments) can be collected in Housing Court, where summary proceedings do not include the discovery process found in Supreme and Civil Court. It is only in these latter courts that co-op boards can collect other unpaid charges, such as late fees, attorney’s fees, utility costs, and fees for use of amenities. 

Some attorneys advise co-op boards that currently itemize building-wide charges to change that policy. Instead, they should consider baking those charges into the monthly maintenance. This will make it possible to collect the money in Housing Court, without resorting to the more cumbersome procedures in Supreme and Civil Court. 

Unlawful evictions are now deemed criminal, classified as a Class A misdemeanor punishable by up to one year in jail and a fine of not less than $1,000 and not more than $10,000 per offense. 

But help might be on the way. Two bills have been introduced in the state legislature, which convenes next month, seeking to have co-ops and condominiums carved out of the Tenant Protection Act. If the bills become law, co-op boards will escape the unpleasant fate of being unintentional roadkill.