Want to Sue? You’ll Have to Pay to Play

Despite the crazy illogic of it, some cooperatives and condominiums are repeatedly sued by litigious residents who disagree with the board’s decisions. One co-op I represent even had shareholders who were attorneys, which enabled them to sue without charging themselves any legal fees. Meanwhile, the board and the other shareholders had to absorb the cost of defending themselves against these lawsuits.

In order to stop this madness, I wrote the following amendment to the co-op’s proprietary lease (and a similar amendment to a condominium’s bylaws):

If any shareholder, subtenant, purchaser, or an applicant to purchase or sublease an apartment (a “plaintiff”) institutes any action or proceeding against the corporation, its officers, directors, agents, or employees, relating to the proprietary lease, the bylaws, the house rules, or the affairs of the corporation, and if there is an adverse determination by the court against the plaintiff or the action or proceeding is dismissed, then on a determination by the court that such action or proceeding was not brought in good faith:

(a) such plaintiff shall reimburse the corporation for the attorneys’ fees and disbursements incurred by the corporation in such action or proceeding or in the enforcement of this provision, and

(b) the corporation shall have the right to collect the same as an assessment against the shareholder or rent against the subtenant.

By applying to purchase or sublease an apartment, an applicant to purchase or sublease an apartment agrees to be bound by this provision. The effective date of this provision is the date that it is approved by two-thirds of the shareholders, and all actions and proceedings brought or new causes of action alleged in then-existing actions or proceedings subsequent to such date shall be expressly subject to this provision.

The purpose of this provision is to level the playing field by making anyone who brings a frivolous lawsuit against the board pay the board’s expenses if it is determined that the action was not brought in good faith.

Without such a provision, there is nothing in the typical proprietary lease or bylaws providing for the cooperative or condominium to be reimbursed for legal fees. One of my buildings instituted this provision 10 years ago, and at the latest annual meeting I was able to report that in the past 10 years there has not been any litigation against the board or the corporation. In the intervening years, every time a board has asked me to review the co-op’s proprietary lease or the condo’s bylaws, I have included the “liability for litigation costs” provision. It’s like insurance: you may never need it, but if you do, it pays for itself many times over.

Stuart Saft is a partner in the law firm of Holland & Knight.