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Justice: Co-ops No Longer Subject to Constraints of Tenant Protection Act

Paula Chin in Legal/Financial on June 10, 2021

New York State

Tenant Protection Act, co-op exemptions, landlord-tenant relationship.
June 10, 2021

The co-op community scored a significant victory on Thursday when the state Legislature passed two bills that effectively carve co-ops out of the Housing Stability and Tenant Protection Act. The intention of the act, which was signed into law by Gov. Andrew M. Cuomo in 2019, was to provide protections to the millions of tenants in rental properties in the state of New York. However, the act has had a profound – and clearly unintended – impact on the thousands of housing cooperatives because co-op boards have a landlord-tenant relationship with shareholders.

“It’s a huge victory, because co-ops should never have been ensnared in this statute,” says Geoffrey Mazel, a partner at the law firm Hankin & Mazel. “Technically, co-ops have a landlord-tenant relationship, but in reality, they’re much different than a rental situation. The Legislature has realized its mistake and fixed the error.”

“I’m glad that we were finally able to get this done,” says Assemblyman Edward Braunstein, a Queens Democrat who submitted the original legislation in the state Assembly in October 2019, days after similar legislation was introduced in the state Senate by Sen. John Liu, a fellow Queens Democrat. “It was inappropriate to include co-ops in the Tenant Protection Act, because co-ops aren’t deep-pocketed landlords,” Braunstein adds. “When someone’s not meeting their obligations, it’s the other shareholders who have to pick up the cost if there’s an increase in their maintenance. We want to protect those shareholders.”

The new legislation carves co-ops out of the most onerous provisions of the current Tenant Protection Act. Unlike rental landlords, co-op boards will no longer be limited to requiring security deposits of one month’s rent or maintenance. Since many co-op boards approve marginal apartment buyers if they agree to put a year or two worth of maintenance in an escrow account, the provision had effectively reduced the number of people who were approved to buy into co-ops.

There will no longer be a limit to application fees co-ops can impose on buyers, which the act currently caps at $20. Since some property managers spend up to $1,000 vetting a prospective co-op buyer, the provision contributed to a chilling effect on apartment sales at co-ops.

Co-ops will now be able to recover attorneys’ fees and other fees in Housing Court. Currently, the Tenant Protection Act allows co-ops to seek only rent or maintenance, forcing co-op boards to initiate additional legal proceedings in civil court to collect unpaid late fees, attorneys’ fees and other charges.

Other provisions of the act, however, do remain, including a hardship exemption for evictions. In the event a co-op board commences a summary proceeding for non-payment of rent or maintenance and obtains a judgment of possession, the tenant or shareholder can continue to attempt to demonstrate “extreme” hardship, and the court can allow such a person to continue living in the apartment for up to a year.

Penalties for late payment of maintenance or rent will no longer be capped at $50 or 5% of the monthly maintenance or rent, whichever is less. Under the new legislation, the cap will be raised to 8%, with no dollar limit.

“Compromise is inevitable, and while it’s not a perfect bill, it’s really undoing what should never have happened in the first place,” Mazel says.

As for when the legislation will be signed into law, Braunstein doesn’t anticipate any delays. “It’s not a controversial bill, and there’s not a lot of objection to it,” he says. “I'm going to be pushing to send it to the governor as soon as possible.”

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