Co-op Board's Licensing Agreement Breaches Its Fiduciary Duty

Q: I was considering buying a co-op on the Upper East Side with a private back yard that was included in the offering plan. The seller and I agreed on the price, but then the co-op board introduced a licensing agreement that imposed a monthly charge equal to 18 shares to use the yard — though the buyer would not get those shares. The board also imposed rules regarding how and when the back yard could be used. Potential buyers had to sign the agreement to be considered. Is it legal for a co-op board to impose a separate fee for an amenity that belongs to the unit?

A: If the back yard is part of the unit, as spelled out in the offering plan, then the board cannot require you to pay a license fee to use it, replies the Ask Real Estate column in The New York Times.

“In fact, if it is part of the unit, the monthly maintenance assessed to the unit would technically cover the cost of the back yard," says Leni Morrison Cummins, chair of the condominiums and cooperatives practice at the law firm Cozen O’Connor. "And any additional amount the board would attempt to collect from you would be tantamount to double-dipping.”

It’s possible the board is trying to correct a mistake from the past that predated the seller’s occupancy. If the back yard is not part of the unit, the co-op may have the right to license its use. But since the back yard is included with the apartment in the offering plan, the more likely scenario is that the board is trying to generate income for the cooperative.

The question that needs to be answered: Why is the board introducing the licensing agreement now?

“It sounds like there’s something very fishy about the board now requiring a license agreement and payment for the equivalent of 18 shares worth of maintenance,” says Steven Sladkus, a partner at the law firm Schwartz Sladkus Reich Greenberg Atlas.

The other thing to keep in mind is that most licenses, by their nature, can be revoked. (There is such a thing as an "irrevocable license.") If the buyer were to sign this license, would the board, later on, say that he can’t use the yard?

“The buyer is going to say that’s crazy," Sladkus says. "That’s a deal breaker.”

Which raises an even more serious concern for the co-op board: it may be failing in its fiduciary duty to the seller. And acting in bad faith, as the April issue of Habitat points out, can leave board members exposed to crippling personal liability.