Cooperative Apartment Corporations Receive Relief from 2019 HSTPA Severe Provisions
On December 22, 2021, Governor Hochul signed into law L2021, Ch 789, thereby relieving cooperatives from certain restrictions that were imposed under the Housing Stability and Tenant Protection Act of 2019 (the “HSTPA”). The new law addresses and corrects certain unintended consequences of the HSTPA, by which New York State rewrote its Landlord-Tenant law and enacted numerous tenant protection provisions. The HSTPA is addressed to landlords-lessors and tenants-lessees and has been read broadly to include cooperatives and shareholders by virtue of their proprietary lease between the cooperative, as lessor, and the shareholder, as lessee.
The new law addresses certain restrictions imposed by the HSTPA upon cooperatives that relate to: (i) security deposit and prepaid maintenance amounts; (ii) late fees; (iii) the types of charges that a cooperative may pursue in a summary proceeding; (iv) the additional notice to be served prior to a Demand For Rent/Maintenance and (v) attorney fees.
Notably, the “hardship” exemption from eviction for nonpayment of maintenance created by the HSTPA was not addressed by the new law and remains unchanged. Thus, a judgment may be obtained against a defaulting shareholder, but eviction may be stayed for up to a year when the shareholder claims and demonstrates hardship.
The relevant changes that the new law allows for cooperatives include:
1. Security Deposits: The law amends the General Obligations Law §7-108 and creates an exception for cooperatives that permits a cooperative to collect in excess of one month’s rent as a security deposit or prepaid maintenance from lessees/tenants of owner-occupied cooperative apartments (excluding units under Private Housing Finance Law). This change is important because, under the HSTPA, lessors were limited to collecting no more than one month’s security deposit or advance rent from their lessees. Now, cooperatives are once again permitted to approve transfers to financially suspect purchasers conditioned upon payment of a security deposit (i.e., six months or more or maintenance charges) to be held in an escrow account as security for the timely payment of maintenance.
2. Application Fees: The law modifies Real Property Law §238-a by eliminating the HSTPA’s twenty ($20) dollar limit on application fees so that managing agents and transfer agents may pass through to prospective purchasers the actual costs, fees and charges incurred in connection with processing, reviewing, or accepting a prospective purchaser’s application, including credit and background checks and administrative charges. The law apparently does not allow the cooperative itself to charge an application fee – just the managing agent
3. Late Fees: The law modifies Real Property Law §238-a by eliminating the HSTPA’s restriction on a cooperative’s ability to assess late fees to no more than fifty ($50) dollars. As modified, a cooperative may now assess late fees or impose an interest charge of up to eight (8%) percent of the monthly maintenance fee so long as the proprietary lease authorizes such fee or interest charge. As many proprietary leases do not provide for collection of a late fee, Boards should consider amending their proprietary leases.
4. Summary Proceedings: The law modifies Real Property Law §702 by exempting cooperatives from the HSTPA’s requirement that lessors may only seek recovery of base “rent” in a summary proceeding. As modified, so long as their proprietary lease so authorizes, cooperatives may pursue recovery of fees, charges, penalties and assessments in a summary proceeding in addition to base unpaid maintenance.
5. Attorneys Fees: The law modifies Real Property Law §234 so as to permit, in the event of a default, either party to recover its attorneys fees so long as recovery of such fees is authorized by the proprietary lease.
To avoid the kinds of problems created by the original HSTPA, and other tenant protective legislation that may unintentionally apply to cooperatives, Boards should consider writing to their legislative representatives to urge them to pass a law that this kind of legislation should only apply to cooperatives if the law specifically so provides.