Out from under. Co-op boards received some welcome news in December 2021 when New York State enacted an amendment to the 2019 Housing Stability and Tenant Protection Act (HSTPA) that exempts co-ops from one of its most onerous provisions. Under the law, late fees imposed by landlords, including co-ops, were limited to $50 or 5% of the monthly rent or maintenance, whichever was lower. The new law allows co-ops to impose a late fee of up to 8% of the monthly maintenance. But there’s a catch: Co-ops can do so only if there’s a provision for the fee in the proprietary lease.
Review your paperwork. That means co-op boards will need to inspect their governing documents. “Most proprietary leases do not provide for late fees if a shareholder fails to pay maintenance on time,” says Stewart Wurtzel, a principal at the law firm Tane Waterman & Wurtzel. Instead, the typical lease holds shareholders liable for interest on the arrears at the maximum legal rate allowed by law, which for an individual is 16% annually. “Boards need to check whether the proprietary lease authorizes a late fee, and if it doesn’t, they need to amend it immediately,” Wurtzel says.
Watch your words. If you’re going to amend the proprietary lease to include the late-fee provision, Wurtzel suggests that instead of specifying an 8% charge, the language should say shareholders will be charged the highest amount allowed by law. “That way,” he says, “if the Legislature changes the 8% to another number in the future, you won’t need to amend the lease again.”
Do your math. The flip side of the equation is that if a co-op’s proprietary lease already allows for the imposition of a late fee, fees in excess of 8% need to be reduced immediately. “Bear in mind that 8% is probably less than what many co-ops are now charging,” Wurtzel says. “We typically see late fees of around $200 a month. For a shareholder paying $2,000 in maintenance, that amounts to 10%.”