Page 8 - CooperatorNews March 2022

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MARCH 2022
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Co-ops Authorized to Charge 8% Late Fee
Proprietary Lease Must Allow for Fees, Says Gov
BY STEWART WURTZEL
On December 22, 2021, Governor Ho-
chul finally signed into law the amendment fails to pay maintenance promptly, the rizing it as a fee, and not as a legal interest since (unlike an amendment to a propri-
which exempts cooperatives from many of shareholder shall be liable for interest at the rate. The standard proprietary lease allows etary lease) boards may generally revise
the onerous provisions of the Housing Sta-
bility and Tenant Protection Act (HSTPA) est and a late fee are not the same things. the highest legal rate allowed by law. For an boards should note that courts may view
of 2019. Under the HSTPA, late fees im-
posed by landlords, including co-ops, were you have ever been late). Since the new leg-
limited to $50 or 5% of the monthly rent, islation specifically requires the proprietary month). Here, a one time 8% charge im-
whichever was lower. The law that went lease to authorize a late fee, there is a good posed after expiration of the grace period
into effect at the end of last year (Real Prop-
erty Law Section 238-A) allows a coopera-
tive (with the exception of Mitchell-Lamas common lease provision.
and HDFCs which are still subject to the
5% or $50 limitation) to impose “a fee of for the imposition of a late fee (or has al-
up to 8% of the monthly maintenance fee ready been amended), late fees in excess forceability of late fees included an argu-
for the late payment of the monthly main-
tenance fee if the proprietary lease or oc-
cupancy agreement provides for such fee.”
While at first blush this seems like rea-
sonably good news, there are substantial as that sum is not greater than 8% of the charge.
problems with the amendment, and co-ops lowest charged maintenance to any share-
are urged to update their proprietary lease holder. It is our opinion that in the event a mending that any co-op that wants to be the lease.
to address issues the amendment creates.
First, most proprietary leases do not the court will likely strike the fee complete-
provide for the imposition of a late fee. The ly and not reduce it to the legal limit.
common provision in proprietary leases
provides that in the event a shareholder the imposition of an 8% charge, it is autho-
maximum legal rate allowed by law. Inter-
(Indeed, think about your credit card bill if individual, that is 16% which accrues over this strategy as an improper lease amend-
chance that imposing the 8% fee will not be is likely to be considered usurious and un-
considered an authorized charge under the enforceable, especially if the shareholder of the board up to the highest rate allowed
If your lease has language that allows added each month.
of 8% need to be reduced immediately. Al-
ternatively, to avoid having to calculate the ent authority to impose fines for violation 8% maximum so that there is at least an ar-
maximum legal late fee on a per-apartment of the rules. Now, the statute requires the gument that you comply with the statute.
basis, you can impose a fixed sum—so long proprietary lease to expressly authorize the Alternately, you can live with the standard
late charge exceeds the authorized amount, able to impose the 8% fee undertake a pro-
Further, although the statute authorizes
interest to be charged to a shareholder at house rules without a shareholder vote,
the course of the entire year (i.e., 1.33% per ment and find it an unacceptable “end run”
defaults for numerous months and 8% is by law. This way, even if the law is further
Previously, arguments about the en-
ment that the cooperative had the inher-
Accordingly, we are strongly recom-
prietary lease amendment immediately.
While many co-ops might seek to amend
their house rules to provide for a late fee
around the statute.
We would suggest that the language al-
low imposition of a late fee at the discretion
amended, the proprietary lease need not
be. If a cooperative chooses to impose a
late fee without amending the lease, we
strongly urge you to bring it down to the
proprietary lease provision and charge the
16% per year interest charge authorized by
n
Stewart Wurtzel is a partner with the law
firm of Tane Waterman & Wurtzel PC in New
York City.
Co-ops Excluded From Rental
Regulations, Finally
Fees, Escrow, & Other Tools Back in Boards’ Toolbox
BY A.J. SIDRANSKY
Back in the fall of 2019, the New York State Legislature passed a new and stringent law
meant to protect and defend the rights of rental tenants. Because co-op boards technically fall
under the legal umbrella of ‘landlord’, they were subject to many of the new law’s restrictions
and requirements. Co-op corporations immediately raised objections to being included, and
launched efforts to remove their communities from the bill’s language. On December 22, 2021,
their efforts met success when Governor Kathy Hochul amended the law to make exceptions
for co-ops.
Landlord, Really?
The issue with the tenant law was rooted in the unique ownership structure of a residential
co-op. Unlike single-family home and condominium unit owners, co-op owners are sharehold-
ers in a corporation that owns their building—not outright owners of real property. As such,
they receive a proprietary lease to their unit as part of their shareholder package. Rather than
a deed, it is that lease that passes from one co-operator to another when a unit (and its cor-
responding shares in the corporation) is sold—and what makes co-op boards resemble some-
thing akin to a property owner, hence a ‘landlord.’ Critics of the 2019 tenant protection mea-
sures argued that the statute failed to take this shade of difference into account. For the past two
years co-ops have been struggling to continue to conduct their business without breaking the
law.
What Was Affected?
The 2019 law prevented co-ops from charging and collecting certain fees. While these pro-
hibitions were fair in a rental context, co-op administrators and advocates argued that they
Tax Abatement Crunch Time
When Must Co-ops & Condos
Pay Staff Prevailing Wages?
BY LENI MORRISON CUMMINS, JENNIFER D. MILLER, & JANICE SUED AGRESTI
Certain cooperatives (co-ops) and condominiums (condos) that wish to be eligible for the
co-op and condo property tax abatement are in a mad dash to submit the newly required pre-
vailing wage affidavit.
Which Communities Must Submit the Affidavit to Qualify?
In a previous alert, we advised that effective April 1, 2022, condos and co-ops must be
deemed a “Qualified Property” in order for the building or any of its unit owners or sharehold-
ers to receive a tax abatement pursuant to Section 467-a of the Real Property Tax Law (§ 467-a).
That means for properties that have (i) 30 or more residential dwelling units and an average
unit assessed value of more than $60,000, or (ii) fewer than 30 residential dwelling units and an
average unit assessed value of more than $100,000, condos and co-ops must submit an affidavit
certifying that they are paying their service employees prevailing wages.
As such, the New York City Department of Finance (DOF) published a preliminary list of
buildings that must submit the prevailing wage affidavit to qualify for the abatement. The pre-
vailing wage affidavit must be submitted by April 15, 2022 unless further extended, as part of
the initial or renewal application process for the 2022-23 tax abatement period.
Further, co-ops and condos that already submitted their application for the tax year 2022-
23 still need to submit the prevailing wage affidavit. The affidavit must be signed by an officer
of the co-op or condo, or by an authorized agent, such as the managing agent of the building.
When Must Co-ops & Condos Pay Prevailing Wages?
The prevailing wage affidavit requires the affiant to certify that all building service employ-
ees employed or to be employed shall receive the applicable prevailing wage for the duration of
the tax abatement year. However, that begs the question: When do boards need to start paying
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