Good News for Cooperatives from the NY Legislature Regarding the Removal of Restrictions on Cooperatives Imposed in 2019

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Smith, Gambrell & Russell, LLP

We are pleased to report that legislation (Senate Bill S5105) has passed both houses of the NY State Legislature relieving cooperatives of a number of restrictions that were applied to them along with conventional rental landlords when the Legislature enacted new tenant protection provisions as part of the Housing Stability and Tenant Protection Act of 2019. In particular, the current bill, which is now pending signature by the Governor, would remove or substantially modify the restrictions that had been imposed on cooperatives regarding (i) late charges, (ii) the ability to require security deposits as a condition of the approval of purchasers, (iii) fees in connection with purchase applications, and (iv) the ability to collect certain charges in summary landlord-tenant proceedings. We have no reason to believe that the Governor will not sign the bill into law.

The 2019 Act limited security deposits in cooperatives to no more than one month’s maintenance, effectively barring cooperatives from requiring substantial deposits as a condition of approving financially marginal purchasers. The limitation has been completely eliminated.

The 2019 Act limited fees for rental applications to $20. This limitation has been eliminated for cooperatives and replaced with a provision permitting cooperatives to pass along to prospective purchasers the actual cost of credit and background checks and management company administrative charges.

The 2019 Act limited late charges on maintenance to a de minimis amount of no more than $50. This restriction has been eliminated. (Although we do caution cooperatives that late charges must be authorized by the proprietary lease, as was true prior to 2019.)

The 2019 Act prohibited cooperatives from collecting charges other than maintenance through summary proceedings in landlord-tenant court. That prohibition has now been completely removed.

The 2019 Act imposed new notice requirements before legal action could be commenced against shareholders for unpaid maintenance. New flexibility as to notices has been added. Rather than the 5-day notice by certified mail required in the 2019 Act, a notice period greater than 5 days and a method of giving notice other than by certified mail is now allowed so long as the alternative provisions are included in the proprietary lease.

The “hardship” exemption from eviction for nonpayment of maintenance created by the 2019 Act remains unchanged. 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.

Please do note that the legislative changes described above will apply only to the relationship between the cooperative and its shareholders. When shareholders sublet their apartments, thereby acting as sublandlords, the restrictions of the 2019 Act will continue to apply to their leases with subtenants.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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