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Co-ops can recover legal fees when suing defaulting shareholders; in condos, this is uncommon. Board insurance covers defense in lawsuits.
AUTHORSlava Hazin, Partner, Warshaw Burstein
The board as plaintiff. When a co-op sues a shareholder for breaches of the proprietary lease — such as failure to pay maintenance, objectionable conduct or illegal repairs — it can recover its reasonable legal fees from the shareholder if the court finds there was indeed a default and the co-op is the prevailing party. On the other hand, there’s a provision in the real property law that provides for tenant shareholders to recover their legal fees if the court finds that they’re the prevailing party. In condos, because there is not a proprietary lease, lawsuits against unit-owners are usually over failure to pay common charges. Even if the unit-owner is the prevailing party in a condo, there isn’t a provision for them to recover legal fees.
As for what constitutes a reasonable fee, it depends on the case and how much time and effort were spent. If the claim is for $10,000 and you incur $100,000 in fees, you’re not going to recover that. For co-ops or condos that sue a third party, like a contractor, the same reasonable fee standard applies, but only if there’s a provision in the contract that entitles one party or the other to recover their fees.
The board as defendant. If a board is sued by a resident or someone else, the directors and officers liability policy (which all boards should have) will provide legal defense, so fees are not an issue. You can hire your own counsel if the insurance company will permit it, but there has to be an agreement as to attorney fees. Companies usually have a list of counsel that specializes in these types of cases that you can pick from. It’s all negotiable.