Rachael Ratner, Partner, Schwartz Sladkus Reich Greenberg Atlas

Boards confronted with residents who don't follow the rules or who cause problems may be tempted to levy a fine or assess a fee in order to resolve the issue. Before doing so, however, it’s extremely important that you first review your governing documents to make sure you actually have the power or authority to assess a fine or fee.

In a condominium, you're going to want to look at your bylaws; in a cooperative, you're going to want to look at your proprietary lease. If you try to levy a fine or a fee without having the requisite authority to do so, you run the risk of a court striking down the fine or fee. If a fine or fee is found to be unenforceable, you run the risk of sending a negative message to all residents about the board's ability to effectively govern.

The board in Cohan v. 700 Shore Road learned this lesson the hard way. In that case, the board attempted to impose a $3,000 subletting fee on a shareholder. The shareholder challenged the fee in court, and the court struck down the fee, finding that the board did not have the requisite authority under its proprietary lease to impose the fee. Not only that, the court also ordered the board to pay for the shareholder’s attorney's fees.

So how can you make sure this doesn't happen to you? First, again, look at your governing documents. If they don’t give you the authority to fine or assess fees, they're going to have to be amended. However, an amendment is likely to require a supermajority vote of all unit-owners or shareholders. Second, even if your governing documents do give you the authority to fine or assess fees, it's important to understand the situations in which exercise of this authority is actually permitted.

In a condominium, for example, most bylaws give boards the power to fine for violations of house rules, but not necessarily for violations of the bylaws.

A third point to consider is that you want the amount of the fines or fees to bear some reasonable correlation to the nature of the offense or the harm caused. If a fine or fee is too high, judges are likely to strike it down as arbitrary and capricious. By the same token, try to avoid adopting policies that give the board the power to assess fees on a case-by-case basis or within its discretion. Such policies are also likely to be found arbitrary and capricious by a judge. The better strategy is to adopt a written schedule of fines or fees that increase with each subsequent offense.

For example, in the case of house rule violations a board may decide to assess a fine of $250 for the first offense, $500 for the second offense, $750 for the third offense, and so on. Be mindful, however, the judges tend to be leery of fines that are much more than a $1,000 per infraction. The other advantage to having a policy of written fines and fees and place is that it helps ensure consistent enforcement so that the board is not forced to sit down and revisit it each time something goes wrong. Finally, it's very important that residents be put on proper notice that they are subject to particular amounts of fines and fees for particular actions. Failing to provide proper notice is also a basis upon which a judge could decide to invalidate a fine or fee.So to wrap it up, fines and fees can be a very effective enforcement tool – provided they’re enforceable and will stand up in court.