New Law Would Block Co-ops From Recouping Legal Fees

Co-op advocates are suffering from a severe case of deja vu all over again. First, the state passed the sweeping Housing Stability and Tenant Protection Act of 2019 in an effort to protect rental tenants from unscrupulous landlords. Unfortunately, the law inadvertently caught housing cooperatives in its net because a co-op’s proprietary lease creates a landlord-tenant relationship between the board and residents. Special legislation was required to carve co-ops out of the law.

Now a new law has been passed by the state Legislature that carries similar unintended consequences. The bill, if signed by Gov. Kathy Hochul, would prevent rental landlords and co-op boards from charging legal fees to residents without first obtaining a court order. The law, which is designed to protect tenants from deep-pocketed landlords, has alarmed co-op advocates, who see an unfortunate replay of the earlier misstep in the Tenant Protection Act. And they’re acting on their alarm.

“I’m drafting a letter to the governor urging her not to sign this legislation in its current form,” says Geoffrey Mazel, a partner at the law firm Hankin & Mazel and counsel for the politically influential Presidents Co-op and Condo Council. “The council and other organizations will be contacting the governor’s office. This bill needs clarification on its applicability to co-ops. It’s a case of shoddy draftsmanship in Albany.”

The bill states: “An owner, lessor or agent thereof shall be prohibited from assessing a lessee any fee, surcharge or other charges for legal services in connection with the operation or rental of a residential unit unless the owner, lessor or agent has the legal authority to do so pursuant to a court order.”

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Confusion has arisen over whether “owner, lessor or agent thereof” includes co-op boards. During committee hearings on the legislation, one of the bill’s sponsors, Assemblyman Jeffrey Dinowitz, a Bronx Democrat, tried to clarify the bill’s intent. “It talks about an owner, a lessor or an agent,” Dinowitz said. “It doesn’t talk about co-ops, and the intent is not for it to apply to co-ops.”

Co-op advocates were not mollified. Stuart Saft, head of the real estate practice at the law firm Holland & Knight and chairman of the Council of New York Cooperatives & Condominiums, has drafted a letter urging his co-op clients and their property managers to sign it and forward it to the governor’s office. “(This bill) negates the standard provisions of existing proprietary leases, alteration agreements, corporate bylaws and other legal documents that require co-op shareholders to reimburse the cooperative housing corporation for legal fees,” the letter states.

It then offers this rationale: “Co-op shareholders require special services – like the right to do alterations, to make trust, estate and other transfers, and to enter into license agreements – that standard rental tenants do not. If a cooperative housing corporation cannot charge the costs of legal consultation on these issues to the benefited shareholder, all the other members of the cooperative must bear the costs...and the co-op’s maintenance fees and assessments will increase.”

In an interview, Saft added, “This bill is totally opposed to the changes that were made earlier this year to the Tenant Protection Act. All we’re asking is that they add a sentence that says this new bill does not apply to cooperative housing corporations in their relations with proprietary lessees or shareholders.”

Asked to sum up his sense of deja vu, Saft said, “This is just crazy.”