Is it Possible to Contest Assessments by Co-Op and Condo Boards?

Co-op shareholders and condo unit-owners dread the news that their board is levying an assessment on top of monthly charges. Lately, that dread has shaded to raw terror as boards grapple with ways to pay for costly retrofits that might be required to bring their building's carbon emissions into compliance with Local Law 97.

When a Riverdale co-op board announced a $500,000 assessment to cover repairs and new city mandates, one shareholder thought the board was being vague about how it arrived at that $500,000 figure. Research revealed that the proprietary lease and bylaws do not give the board specific authority to impose assessments, but those governing documents do give the board power to determine maintenance payments and cash requirements. Is there any way for shareholders or unit-owners to challenge an assessment?

Courts allow co-op and condo boards significant power to manage a building’s finances, especially when it comes to maintenance and compliance with city codes, through a legal principle called the business judgment rule, replies the Ask Real Estate column in The New York Times. Even if the governing documents don’t use the specific word “assessments,” the board still has the right to raise money to keep the building in proper order, as long as it is acting in good faith, says Joseph Colbert, a real estate lawyer at Colbert Law. If a board fails to act in good faith — or indulges in self-dealing — it forfeits the considerable protections of the business judgment rule.

“Courts are unlikely to overturn a decision solely based on terminology,” Colbert says. “They prioritize the board’s underlying authority and the purpose of the charge.”

In any event, an open dialogue between shareholders and the board is preferable to a costly legal conflict that would create tension in the building. “If there is a basis for a challenge, it is best to aim for an amicable resolution rather than running into court to embark on a protracted and costly legal battle,” says Debra Guzov, a real estate lawyer in Manhattan.

Start by approaching the managing agent to request the minutes from the board meeting in which the assessment was discussed and adopted. The minutes can offer insight into why the board believes the assessment is necessary and how the $500,000 sum was calculated, Guzov says.

If the minutes don’t offer the clarity you seek, you can ask the managing agent for specifics on how the money will be spent. You can also ask to review contracts that were executed to complete the work, to see how much it will cost, though you might not automatically be entitled to see them. Check your bylaws for guidance.

The bottom line: if the board levied the assessment in good faith, disgruntled shareholders are probably out of luck. Time to pay up.