Shareholder Wants To Fight COVID-19-Linked Assessment. Good Luck.

A Manhattan co-op board, like many others across the city, is planning to levy an assessment on shareholders because it is no longer receiving rent from commercial tenants due to COVID-19. Shareholders had been saddled with an unrelated assessment for two years before the pandemic hit. Instead of ending soon, that assessment will soon increase. Do shareholders have a legal right to fight the board’s move?

Co-op shareholders pay fees, including monthly maintenance and special assessments, to cover the costs of running, maintaining and upgrading the property, replies the Ask Real Estate column in The New York Times. It’s part of the regular course of operating a building.

A co-op’s governing documents lay out the board’s powers, including the power to impose these fees. So shareholders probably don’t have legal grounds to fight a special assessment meant to offset the loss of income from a commercial tenant. “I haven’t seen a proprietary lease that doesn’t give the co-op the authority to give an assessment,” says Dennis Greenstein, a partner in the law firm Seyfarth Shaw.

For disgruntled shareholders, there is a remedy: They can run for seats on the board when they are dissatisfied with the leadership or want a direct say in how the building is managed.

Usually, co-op boards use monthly maintenance fees to cover general operating costs and use special assessments to pay for specific one-time expenses, such as a new boiler. This particular Manhattan co-op board may look at the lost rental income from its commercial spaces as a short-term cost, working on the assumption that eventually it will find new tenants. Since co-op boards have a fiduciary duty to balance their budgets, this board has two choices: raise monthly maintenance fees permanently; or levy a one-time assessment, spread out over a period of months. This board probably decided that the second option was preferable because it’s not permanent.

“Once you raise the maintenance,” Greenstein notes, “it very rarely gets lowered.”

Under normal circumstances, having a retail tenant is a boon for a co-op. This Manhattan building has likely lost considerable revenue without its commercial renters – revenue that, over the years, helped keep maintenance fees down. The assessment is certainly a hit for residents at a time when many people are under financial strain, but if they look at this charge as a temporary bridge to keep the co-op afloat until a new tenant can lease the commercial space, it may make this bitter pill a little easier to swallow.