Gallet Dreyer & Berkey, LLP | How to Comply with Part M of <em >The Housing Stability and Tenant Protection Act of 2019</em >
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How to Comply with Part M of The Housing Stability and Tenant Protection Act of 2019

November 2019 | By: Marc J. Luxemburg, Esq.| GDB 2019 Fall Newsletter
Part M of the New Rent Law contains a number of other provisions that create financial and operating difficulties for all cooperatives and, to some extent, condominiums. Part M was passed without any public input and apparently without any recognition on the part of any of the legislators that it would affect cooperatives. The law specifically affects admissions and operating procedures and adversely affects litigation brought by a cooperative. In this article we deal with the admissions and operating issues – litigation will be dealt with more specifically in a future issue.

Admissions Issues

  1. Section 10 of the New Rent Law prohibits a landlord or grantor from charging a fee for the processing of an application, or any charge before the beginning of any tenancy, except a limited fee for a background check. Whether this applies to the customary fees charged by the managing agent, or to move-in fees or elevator use fees, is an open question.
    • We note the New York State Department of State recently issued guidance that the limit on application fees does not apply to cooperative purchase/sale transactions. It remains to be seen if the courts will accept this view.
    • There is a reasonable argument that if processing fees are charged by the managing agent for its own account and not for the cooperative, it would not be covered by the statute.
    • Elevator use fees, or move-in move-out fees, should not be charged until after the purchaser acquires title to the apartment.
  2. Section 5 prohibits a landlord from refusing to offer a lease to a potential tenant because the tenant was involved in any prior landlord-tenant proceedings (but not other proceedings). A (rebuttable) presumption is created that a refusal is in violation of this section if the cooperative inspected housing court records relating to the potential tenant.
    • This will make it more difficult for boards to refuse to approve a prospective shareholder based upon a background check on prospective purchasers. Boards can still do litigation searches on cases that are not in the housing court, and should be careful to limit the search sources to general litigation.

Operational Issues

  1. Section 9 (d) of the New Rent Law provides that if the shareholder fails to pay rent within 5 days of the due date, the co-op or managing agent (not the attorney) must give notice by certified mail, and the failure to give such a notice is a defense in an eviction proceeding based on non-payment of rent.
    • Attorneys can prepare these notices but they must be signed by the co-op or managing agent.
    • It is not clear whether rent for purposes of this section includes assessments, or other charges defined in the lease as “additional rent.” We note that Section 11 of the new law dealing with legal proceedings defines “rent” as the monthly amount charged for occupancy of the apartment. While this by its terms is limited to a legal proceeding, courts may apply it to section 9 as well.
    • Accordingly, it might be prudent to either (i) send two notices, one for unpaid rent and one for unpaid assessments and other non-rent items or (ii) rename what are now assessments as an increase in the monthly rent, and charge only one amount.
  2. Paragraph 2 of Section 10 prohibits the imposition of any fee or charge for the late payment of rent that exceeds $50, or 5% of the rent, whichever is less. This certainly applies to late fees and applies regardless of the proprietary lease or house rules’ provisions imposing late fees. Note, if a cooperative obtains a judgment against a delinquent tenant who fails to pay rent timely, the law provides for the payment of prejudgment interest. Query whether the new law will affect the cooperative’s rights to collect prejudgment interest.
    • This section can only serve to induce shareholders not to pay maintenance, since not paying the co-op is cheaper than borrowing from a bank.
  3. Section 3 requires a landlord (including a shareholder or unit owner who is subletting) to give written notice of an intent to raise the rent (maintenance), upon a renewal of a tenancy, by more than 5%, or an intent not to renew the lease. Virtually all subleases are for a limited term of one or two years. If the notice is not given, the tenancy continues until a notice is given. This may make it impossible to evict a one or two year subtenant unless the unit owner gives such a notice.
    •  The board may require that a notice not to renew be incorporated into the lease at inception, or may require that the subletting owner give the board a power of attorney to send a non-renewal notice.
  4. Section 9 requires a cooperative to give a written receipt for any payment of rent in any form other than by check, signed by the person receiving the payment, within fifteen days of receipt. This applies to any other form of payment, including electronic payments by preauthorized withdrawals, or payments by credit card.
    • This will require the co-op to create an automatic system for the generation of a receipt, and for any but the smallest buildings, a form of electronic signature on the receipt.
As noted above, it seems evident that in the rush to benefit rental tenants, cooperatives and condominiums were simply ignored in the legislative process. There is an opportunity to push back against the application of Part M to cooperatives and condominiums and we hope that every board will take this opportunity to get involved in the process and make their voices heard. We strongly recommend to all our clients that they communicate in person with both their assembly person and their state senator and advocate that the law be amended so that Part M does not apply to cooperatives and condominiums.

Please do not hesitate to call us if you have any questions about how to comply with these new requirements.