Revoked Relief Erroneous: ERAP Includes Cooperative Maintenance

12/18/23
Michelle P. Quinn in New York Law Journal article Revoked Relief Erroneous ERAP Includes Cooperative Maintenance

The Emergency Rental Assistance Program was created to provide economic relief to low- and moderate-income households at risk of homelessness due to the pandemic. The program was rushed to meet the immediate threat of evictions due to the COVID shutdowns, and the hastiness of ERAP’s creation has led to a wave of litigation, including a recent New York Supreme Court ruling.

The COVID-19 pandemic and corresponding financial fallout compounded many longstanding housing stability and affordability issues faced by New Yorkers. In June 2021, the Emergency Rental Assistance Program (ERAP) was created to provide economic relief to low- and moderate-income households at risk of homelessness due to the pandemic. The program was rushed to meet the immediate threat of evictions due to the COVID shutdowns, and the hastiness of ERAP’s creation has led to a wave of litigation, including a recent New York Supreme Court ruling.

The Commissioner of the Office of Temporary and Disability Assistance (OTDA) was charged with establishing eligibility standards to receive funds distributed under ERAP. Eligible households included those in which the tenant or occupant had an obligation to pay rent for their primary residence. If the eligibility standards were met, unpaid rent that had accrued during the period of the pandemic (for up to a total of 15 months) was paid by OTDA directly to the landlord on behalf of the tenant, thereby eliminating the risk of eviction based on nonpayment of rent. At the inception of the program, no distinction was made between rental tenants, occupants, and cooperative shareholders.

In many important respects, the relationship between a cooperative corporation and its shareholders is the same as that of a traditional rental landlord and tenant. This relationship is memorialized in a proprietary lease which sets forth the rights and obligations of both parties, like a traditional rental agreement, and shareholder defaults are resolved in summary proceedings which can result in eviction as well as termination of their lease, like traditional rental tenants.

Despite this well-established treatment, a few months after the ERAP program was implemented, the OTDA declared, in the FAQ on its website under the heading “Benefits Available and Who is Eligible,” that “Co-op shareholders are not eligible for ERAP to cover monthly maintenance fees” taking both landlords and tenants by surprise.

In nearly 100 years of legal proceedings, cooperative maintenance has been considered the equivalent of rent. Moreover, significant ERAP sums had already been paid to cooperatives to cover shareholder arrears, presumably since ERAP’s own eligibility guidelines incorporated the payment obligation as defined in RPAPL 702. OTDA’s subsequent repudiation of cooperatives contradicts the explicit language of the program.

Under RPAPL 702, “rent” shall mean “the monthly or weekly amount charged in consideration for the use and occupation of a dwelling pursuant to a written or oral rental agreement.” The statute limits the actual charges that may be sought in a summary proceeding for eviction, exempting only market-rate cooperatives from that limitation.

Many cooperative shareholders, including those in Mitchell-Lama and HDFC housing—which are specifically intended for low- to moderate-income people—applied for and received ERAP funds to cover their maintenance arrears which had accumulated due to the pandemic. Without explanation beyond its mere declaration of ineligibility, OTDA has begun to claw back those payments from cooperatives, in some cases exceeding several hundred thousand dollars. This means that those shareholders who had originally qualified and been approved for ERAP assistance are now at risk of being evicted, undercutting the program’s very purpose.
Owing to this and other inconsistent and contradictory decisions by OTDA, in recent months, several appeals have been filed where OTDA had determined an applicant to be ineligible and demanded the return of payments made for cooperative arrears on the grounds that “maintenance” is not “rent.”

One Albany court recently reiterated at length that the OTDA must abide by the definition it identified would be used in its program: RPAPL 702. In the Article 78 appeal before the Albany County Supreme Court, the petitioner in Levitt v. Tietz, a shareholder in a Mitchell-Lama cooperative, asked “only that the program be effected in the manner that it was legislated.”

In its Aug. 23, 2023 decision, the court ruled that it was clear from the language of the legislation that monthly maintenance fees, especially for those in low- and moderate-income housing, should be included under ERAP. The court found that the legislative intent could be discerned from the language of the program itself—which invoked the definition of rent as defined in RPAPL 702—which consequently includes “maintenance” as “rent.”

Based on the legislative history and its clear intent to include, at a minimum, maintenance charges in low- and middle-income cooperatives, the Albany court refused to dismiss the Article 78 appeal, finding that “the definition of rent in RPAPL includes maintenance paid by certain cooperative shareholders,” and that “OTDA’s determination that petitioner was not eligible for ERAP funds [was] arbitrary and capricious.”

The court’s decision reflects the proper application of the very definition of rent described in RPAPL 702 and incorporated by ERAP, whether called maintenance, carrying charges, or rent. The decision further recognizes the distinction that the legislature has made between market-rate cooperatives and low- and moderate-income housing cooperatives, creating statutory exceptions for the former but not the latter. The OTDA’s exclusion of all cooperatives from ERAP was contrary to the purpose of low- and middle-income cooperatives which house the very families it is designed to protect.

The decision was cited in at least one subsequent proceeding brought against a Mitchell Lama cooperative shareholder for nonpayment. Following the Albany court’s rationale, in September, a Queens County housing court held that there is a possibility that “an applicant such as respondent may qualify for ERAP assistance” since the Albany court “found that the ERAP statute clearly made cooperative shareholders eligible for ERAP funds”.

While all cooperatives fall under the purview of RPAPL 702 (and eligibility for ERAP funds), private cooperatives are often in a better position to withstand significant arrears balances as many have reserve funds on which they can rely to cover expenses.

In contrast, when a low- and middle-income Mitchell Lama or HDFC cooperative cannot collect maintenance from every apartment, all of the residents of the cooperative suffer due to the lack of sufficient funds to operate the building.

This distinction is significant for the continued viability of Mitchell Lama and HDFC cooperatives. If the ERAP payments are returned to OTDA, these cooperatives will necessarily demand payment of arrears from the defaulting shareholders, and the shareholder’s inability to pay will result in their eviction. Given the limited equity available in low- and middle-income cooperatives, the arrears may remain uncollected, leaving the cooperative with an operating deficit.

In December 2021, the legislature modified the June 2019 Housing Stability and Protection Act to carve out cooperatives from many of its statutes, but with the exception of low- and middle-income cooperatives. The legislature should modify the ERAP provisions in the same way. Otherwise, if the OTDA is successful in clawing back funds already paid to cooperatives to cover maintenance arrears, the only result will be increased evictions and homelessness—defeating ERAP’s very purpose.

The Albany court’s decision is a step forward in clarity for those affected, but there are still cases pending and the legislation has not yet been amended.

Michelle P. Quinn is a partner at Gallet Dreyer & Berkey in New York City. Her practice focuses on real estate law, cooperative and condominium law and litigation.

about the attorney

Michelle P. Quinn

Partner

Michelle P. Quinn represents cooperative and condominium boards, businesses, and individuals regarding issues with shareholders and owners in commercial and residential landlord-tenant litigation, including summary proceedings, administrative agency hearings, and Supreme Court actions and appeals.  She has substantial experience with Mitchell-Lama cooperatives, redevelopment companies, and tenancies protected by New York State Rent Regulation.

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