On June 14, 2019, Governor Andrew Cuomo signed The Housing Stability and Tenant Protection Act of 2019. Because a cooperative is a landlord and shareholders are tenants under the proprietary lease structure, the new laws’ prohibitions for landlords impacts some of the HDFC Board’s abilities to remove shareholders from occupancy. This newsletter article examines situations in which an HDFC may be forced to take a shareholder to Housing Court, such as for the nonpayment of maintenance and holdovers for violations of a provision of the proprietary lease or the warranty of habitability for noise, vermin or hoarding conditions, among other reasons.
Fees. The law precludes landlords from charging late fees in excess of $50, or five percent of the monthly “rent,” whichever is less. The law also prohibits landlords from charging a fee of more than $20 for processing an “application” or performing a background check. Currently, the law is being interpreted as limiting the application fee a co-op board can charge a prospective shareholder looking to purchase shares in the HDFC. Furthermore, the law seems to prevent the Board from passing on the actual cost of background checks to the prospective shareholder.
Security deposits. Another provision limits any required security deposit to the amount of one month’s rent. This could be interpreted to limit the amount that co-op shareholders are required to deposit under maintenance escrow agreements and even alteration agreements. Alteration agreements often contain provisions that classify the fees and penalties tenant-shareholders are required to pay as “additional rent or maintenance” pursuant to their proprietary leases, which can then be deducted from the alteration security deposits, which may bring the alteration security deposit within the scope of this law.
Evictions. The new law will increase the cost associated with evicting “residential tenants” who fail to pay their rent or maintenance. It places limits on what monies can be collected by a landlord in a summary proceeding, and it increases the length and complexity of notice requirements. These provisions will affect cooperatives that bring summary proceedings against defaulting shareholders, as well as individual shareholders who sublease their units. In sum, HDFCs must allow more time to process an eviction, at least an additional four to six weeks on average.
Collecting Monies Owed. Importantly, common cooperative charges, such as late fees, utilities, and repair costs, can no longer be sought in a summary proceeding in Housing Court and can be sought only in a separate plenary action. This will likely result in an increase in litigation in New York’s already overburdened court system. Some co-op boards may find that it is financially untenable to recover these costs through litigation and may have to collect the amounts through another means, such as by waiting until the unit is sold, or by withholding amenities from shareholders who are in arrears.
Given the additional restrictions in The Housing Stability and Tenant Protection Act of 2019, Goldstein Hall is advising HDFC clients that now, more than ever, it’s imperative for Boards to get in front of looming problems with shareholders and exhaust all problem-solving strategies outside of the courtroom before commencing litigation. We will continue to keep HDFCs apprised of the law and notify you if some of the proposed amendments to this Act are eventually passed in Albany.
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