A recent Appellate Division, First Department, decision (the Kasowitz, Benson Decision) has important implications for cooperatives with proprietary leases containing attorney-fee provisions.

About the case

In Matter of Kasowitz, Benson, Torres & Friedman, LLP v. JPMorgan Chase Bank, N.A. (App. Div. 1st Dep’t Apr. 10, 2025), the court examined an attorney’s fee provision in the proprietary lease between The Dakota, Inc. and a shareholdertenant. The clause allowed the cooperative to recover legal fees in two situations:

• Whenever the tenant was in default, and the cooperative took action based on that default; and
• Whenever the cooperative defended any action brought by the tenant, even if the coop was itself in default, and regardless of whether the coop prevailed.

The Appellate Division held that this fee-shifting provision was unenforceable and unconscionable because it obligated the tenant-shareholder to pay the cooperative’s legal fees regardless of fault or merit, and even when the cooperative was not the prevailing party. Such a one-sided provision, the court found, was contrary to public policy and improperly deterred shareholders from bringing legitimate claims.

Why this case matters for your cooperative

Many proprietary leases drafted decades ago contain similar feeshifting provisions. In light of this decision, such clauses may now be found unenforceable if they grant the cooperative legal fees in circumstances untethered to prevailing-party status, merit, or shareholder default.

For this reason, Gallet Dreyer & Berkey encourages boards and managing agents to review their proprietary leases to assess whether the legal fee provisions should be updated to conform to current law and avoid future enforceability challenges.

If you have questions about your co-op’s exposures, please feel free to click here to contact David or call him at 212-935-3131.