Can a Co-Op Board Make Autopay Mandatory for a Deadbeat Shareholder?

A board member at a 10-unit Harlem co-op has a problem and a question. The problem is that one of the 10 shareholders never pays his monthly maintenance on time, which, in such a small building, puts a strain on the other nine shareholders. The two-pronged question is: Can the board require the deadbeat to set up autopay? And how can the board legally compel him to pay up on time?

“There have to be some ramifications if he always pays late,” Michael Ciarlo, a partner at the law firm Nadel & Ciarlo, tells the Ask Real Estate column in The New York Times.

To answer the first question: Generally, a co-op cannot impose terms like autopay on a shareholder if the proprietary lease doesn’t authorize it.

The answer to the second question: Check the proprietary lease to see if it allows the building to impose late fees. New York state real property law currently allows co-ops to charge up to 8% of the monthly maintenance cost as a late fee, if the lease allows for it. There are exemptions for income restricted co-ops such as HDFC's and Mitchell-Lamas.

If the proprietary lease doesn’t address late fees, the board can start the process of amending it, which would require approval by some portion of the shareholders, frequently a two-thirds supermajority. A new provision should state that late fees can be considered additional rent in the lease, which would allow the board to seek possession of the unit in housing court over failure to pay. It should also allow for the highest fee amount permitted by law —not specifically the current 8% — so that the board doesn’t have to amend the provision whenever the law changes.

Another approach would be to send legal demand letters every time the maintenance fees are not paid on time, tacking on legal fees that the co-op pays to draft the letters, says Steven Sladkus, a partner at the law firm Schwartz Sladkus Reich Greenberg Atlas.

If that doesn’t get the deadbeat shareholder’s attention, the co-op could issue a notice for objectionable conduct and call a special meeting to see if his continued tenancy is undesirable. This could result in a termination notice.

“I would consider a chronic nonpayer to be guilty of objectionable conduct,” Sladkus says, though he warns that following through with termination — a co-op board's nuclear option — can be legally difficult.