Attorney Joe Colbert discusses a recent case allowing New York cooperative boards arguably to charge sublet fees for their sponsors or holders of unsold shares even though their proprietary leases say otherwise.
[embedyt] https://www.youtube.com/watch?v=ROo4h4-4toU[/embedyt]
A business entity’s business records can be discoverable in lawsuits. When employees or board members of a business entity are using their personal email accounts like gmail, yahoo, etc. to conduct business, those personal email accounts are fair game when it comes to discovery. The complication is that business emails are now mixed with personal emails in those accounts and an adversary could be allowed access to both the business and personal emails. How embarrassing would that be?
This issue just came up in a lawsuit between Exxon Mobil and the State of New York. Manhattan State Supreme Court Justice Barry Ostrager is presiding over the lawsuit in which Exxon Mobil has accused the Attorney General’s Office of official misconduct and acting with a conflict of interest.
Exxon Mobil has alleged that Schneiderman, while in office, used his personal email account to conduct official business related to his office’s investigation of the company. Exxon Mobil had obtained a series of communications relevant to the litigation through discovery that Schneiderman had forwarded to his government account from his personal email. Based on that finding, the company went for the jugular, demanding broader access to Schneiderman’s personal email account to support their claim of official misconduct on his part.
The company suggested in recent filings that there may be additional communications on Schneiderman’s personal email account that he chose not to forward and preserve. Those communications could have shown he was influenced by environmental activists to trigger an investigation and bring litigation against the company.
The Court ruled that, instead of unfettered access to Schneiderman’s account, Exxon Mobil would be provided with a signed declaration from Schneiderman certifying that anything relevant on the account was made available to them through discovery.
What a mess created by Schneiderman using a personal email account instead of just his office’s business email account.
The Court’s resolution of the discoverability issue, for the moment, does not change the fact that business email in personal email accounts is not shielded from discovery. Schneiderman has to provide a sworn declaration certifying that relevant emails in his personal account were all turned over. Exxon Mobil could appeal the decision and continue arguing for access to the entire personal email account to make its own assessment of what is relevant rather than relay on a declaration by its adversary in a contentious litigation. We’ll have to wait and see.
This serves a warning to businesses and their employees and board members. If you allow employees or board members to use personal email accounts to conduct business, those emails are discoverable and will expose the entire email account (both personal and business emails) to discovery.
The Manhattan Appeal Court’s just issued a decision that Title Insurers will not be happy about. What is understandably being reported by most of the media is that “A New York state appeals court has reinstated regulations on the title insurance industry enacted to prohibit insurers from wining and dining attorneys and real estate agents in exchange for business referrals and passing those costs along to consumers.” (See e.g.)
There are some positive aspects for title insurance companies that are being overlooked. Indeed, the Court also held that:
1. There is “no rational basis for DFS to impose an absolute ban on the collection of certain fees by in-house closers while permitting independent closers to collect the same fees as long as the fees are reasonable and the requisite notice is provided to consumers (11 NYCRR 228.5[d])”; and
2. “Nor is there a rational basis for capping fees for certain ancillary searches at 200% of the out-of-pocket costs of those searches or 200% of certain other measures in the absence of any out-of-pocket costs (11 NYCRR 228.5[a][1]-[3]).”
Because it was unanimous, further appeal to the New York Court of Appeals would have to be granted on a request for leave to appeal by the Appellate Division First Department which issued the decision or by the New York Court of Appeals.
Although the overall result was not a positive one for title insurance companies, there is some positive value that should not be overlooked.
Click here for the decision.
As we previously reported, the New York Appellate Court that oversees the Manhattan and the Bronx Supreme Courts issued a unanimous decision at the beginning of November, 2018, which may significantly impact the right of cooperatives, and likely condominiums, that try to seek the reimbursement of legal fees from defaulting shareholders or owners.
In Krodel v. Amalgamated Dwellings, the Appellate Division, First Department held that the provision in the cooperative defendant’s proprietary lease covering reimbursement of legal fees is “unconscionable and unenforceable as a penalty.” Thus, even though the cooperative there may have prevailed in the lawsuit, it could not recover its defense counsel’s fees and costs from the shareholder plaintiff who lost.
The lease provision in Krodel provided in Section 7 of the proprietary lease that:
[i] Lessor shall incur any cost, fee or expense (whether paid or not), including reasonable legal fees and other professional fees and disbursements: (a) in performing any act which the Lessee is required to perform; or (b) in connection with any action or proceeding brought by the Lessor against the Lessee, including any counterclaim asserted therein, which is based on a default of the Lessee hereunder or which is based on any other matter or thing relating to this lease, or to the Lessee’s failure to perform any act which the Lessee is required to perform, or to the Lessee’s occupancy in the Apartment, or to the shares of the Lessor issued to the Lessee, or to the Lessor’s Bylaws, Certificate of Incorporation, House Rules, or regulations duly adopted by the Board of Directors; or (c) in connection with any action or proceeding brought by the Lessee against the Lessor, including any counterclaim asserted therein, which is based on an alleged default of the Lessor hereunder or which is based on any other matter or thing relating to this lease, or to any alleged failure by the Lessor to perform any act which the Lessor is required to perform, or to the Lessee’s occupancy in the Apartment, or to the shares of the Lessor issued to the Lessee, or to the Lessor’s Bylaws, Certificate of Incorporation, House Rules, or regulations duly adopted by the Board of Directors, then such cost or expense shall be paid by the Lessee to the Lessor, on demand as additional rent. The Lessee’s obligation to reimburse the Lessor for such costs, fees and expenses shall include the costs, fees and expenses incurred by the Lessor in (a) obtaining an award of such costs, fees and expenses, including but not limited to proceedings to determine the amount of reasonable legal fees and other professional fees to be awarded, and (b) recovering payment in full of such costs, fees and expenses from the Lessee.
Click here to read the Krodel Court’s decision.
Notwithstanding the First Department Decision, in Board of Directors of 340 East 93 St. Corp. v. Acevedo, the Supreme Court, New York County, granted the coop plaintiff’s summary judgment motion for an award of legal fees for having to bring an injunction lawsuit. The Court granted summary judgment against the defendants on the ground that the coop was entitled to award under the proprietary lease because it prevailed.
An interesting component of this case is that the parties entered into a Court ordered stipulation regarding the injunction and the Court deemed this prevailing in the action. The proprietary lease in the case contained the typical attorneys’ fees provision that:
28. If the Lessee shall at any time be in default hereunder and the Lessor shall incur any expense (whether paid or not) in performing acts which the Lessee is required to perform, or in instituting any action or proceeding based on such default, or defending, or asserting a counterclaim in, any action or proceeding brought by the Lessee, the expense thereof to the Lessor, including reasonable attorneys’ fees and disbursements, shall be paid by the Lessee to the Lessor, on demand, as additional rent.
The 340 East 93rd St. Corp proprietary lease doesn’t seem much different than the Krodel proprietary lease in that both do not require the coop to prevail in order to be able to recover attorneys fees. The Krodel Court invalidated the lease provision, but the 340 East 93rd St. Corp Court did not.
I suggest waiting to see if the parties move to reargue or appeal the decision. The Court ordered a hearing on the amount of legal fees. If the parties appeal, this may be an opportunity to ask the First Department to have another look at the provision and perhaps amicus briefs will be submitted by interested industry organizations in support of the typical proprietary lease provision which coop and similarly condo clients have been relying upon for years.
Here’s the decision in 340 East 93rd St. Corp case.
In a 52-page decision, District Judge Paul A. Engelmayer of the Southern District of New York put a kibosh on New York City’s short-term rental regulation that was set to go into effect on February 2, 2019. NYC has been trying to figure out an efficient way to enforce its short-term rental restrictions and this regulation was a way that it was hoping to do so.
Under the regulation, Airbnb, Homeaway and other short-term rental platforms would have had to provide transparent monthly reporting to NYC which it was going to use to help its enforcement efforts by identifying wrongdoers. The Court preliminarily enjoined NYC with regard to the regulation which essentially amounts to a win for the short term rental platforms.
This however will not stop NYC from continuing to investigate and issue violations to buildings with illegal short term renting. NYC’s Mayor’s Office of Special Enforcement has been cracking down on illegal short term renting, issuing violations with significant monetary penalties, to offenders and building owners including condominiums and cooperatives.
Now that NYC’s latest effort to enforce the law has been stymied by Airbnb’s and Homeaway’s Federal Court injunction, buildings need to be more vigilant and proactive in protecting their own buildings from short term rental violations which violate NY law as well as their own rental restrictions which may be more conservative than NY law. NYC will continue to investigate and issue violations where appropriate and buildings will have to defend themselves and seek mitigation of the violations that are being issued. The only way to do that is to be vigilant and proactive. Buildings that sit idle expecting NYC to do the leg work may find themselves on the wrong side of a violation.
Buildings and jurisdictions like NYC have to keep expanding awareness of rental restrictions and harnessing as much data as possible to identify wrongdoers and deter illegal renting. Once wrongdoers are identified, jurisdictions can still issue subpoenas to Airbnb and the other booking agencies in their enforcement efforts. We expect NYC to keep up its enforcement efforts and it and other jurisdictions in the same boat need buildings to do their proactive part. That seems to be the message sent by the Federal Court in its decision (read it here).
The New York Appellate Court that oversees the Manhattan and the Bronx Supreme Courts issued a unanimous decision at the beginning of November, 2018, which will significantly impact the right of cooperatives, and likely condominiums, that try to seek the reimbursement of legal fees from defaulting shareholders or owners.
In Krodel v. Amalgamated Dwellings, the Appellate Division, First Department held that the provision in the cooperative defendant’s proprietary lease covering reimbursement of legal fees is “unconscionable and unenforceable as a penalty.” Thus, even though the cooperative there may have prevailed in the lawsuit, it could not recover its defense counsel’s fees and costs from the shareholder plaintiff who lost.
The provision there is the same or very like the provision in most cooperative’s proprietary leases. Below is the provision. Please check your proprietary lease and if it contains the same or a very similar provision, you should seriously consider amending your provision. This is not an easy task because it will likely require a supermajority of shareholders, but there are ways of accomplishing this. Some firms like our firm may handle such matter on a flat fee basis so that it is cost effective.
The lease provision provides in Section 7 of the proprietary lease that:
[i] Lessor shall incur any cost, fee or expense (whether paid or not), including reasonable legal fees and other professional fees and disbursements: (a) in performing any act which the Lessee is required to perform; or (b) in connection with any action or proceeding brought by the Lessor against the Lessee, including any counterclaim asserted therein, which is based on a default of the Lessee hereunder or which is based on any other matter or thing relating to this lease, or to the Lessee’s failure to perform any act which the Lessee is required to perform, or to the Lessee’s occupancy in the Apartment, or to the shares of the Lessor issued to the Lessee, or to the Lessor’s Bylaws, Certificate of Incorporation, House Rules, or regulations duly adopted by the Board of Directors; or (c) in connection with any action or proceeding brought by the Lessee against the Lessor, including any counterclaim asserted therein, which is based on an alleged default of the Lessor hereunder or which is based on any other matter or thing relating to this lease, or to any alleged failure by the Lessor to perform any act which the Lessor is required to perform, or to the Lessee’s occupancy in the Apartment, or to the shares of the Lessor issued to the Lessee, or to the Lessor’s Bylaws, Certificate of Incorporation, House Rules, or regulations duly adopted by the Board of Directors, then such cost or expense shall be paid by the Lessee to the Lessor, on demand as additional rent. The Lessee’s obligation to reimburse the Lessor for such costs, fees and expenses shall include the costs, fees and expenses incurred by the Lessor in (a) obtaining an award of such costs, fees and expenses, including but not limited to proceedings to determine the amount of reasonable legal fees and other professional fees to be awarded, and (b) recovering payment in full of such costs, fees and expenses from the Lessee.
If your proprietary lease provision is the same or similar, and you’re in Manhattan or the Bronx, then the law right now is that the provision is not enforceable and thus, your cooperative or its complaining shareholder can’t recover legal fees or costs even if they are victorious based on this provision. This is a lot of legalese and if you’re having problems comparing or understanding the provision you should seek counsel. If you’re not represented and would like to know for sure, we would be happy to provide a free consultation. This is a critical issue for community associations because the ability to seek effectively a reimbursement of legal fees and costs is a tremendous deterrent against bad conduct and could devastate a cooperative or condominium that can’t seek reimbursement.
The Court’s problem with the provision is that it provides for example, that even if the complaining shareholder was the winner in a lawsuit, the cooperative could still demand that the shareholder pay its defense fees and costs. In the Court’s words:
In the present case, we find that an attorneys’ fees provision which provides that the tenant must pay attorneys’ fees if it commences an action against the landlord based upon the default of the landlord is unconscionable and unenforceable as a penalty. Paragraph 6(7)(c) of the proprietary lease permits the landlord to recover attorneys’ fees when the tenant brings an action against the landlord even when the landlord is in default. To enforce such a provision would produce an unjust result because it would dissuade aggrieved parties from pursuing litigation and preclude tenant-shareholders from making meaningful decisions about how to vindicate their rights in legitimate instances of landlord default.
It is not clear whether the Court considered Section 234 of the Real Property Law, which is applicable to co-ops (but not condominiums), and was meant to level the playing field with regard to legal fee and cost reimbursement between landlords and tenants. A review of the legal papers submitted by Amalgamated shows that they did raise Section 234 which provides that if a residential lease permits a landlord to recover legal fees incurred in any action or proceeding arising out of the lease, the tenant is also entitled to recover legal fees if it successfully defends or prosecutes an action arising out of the lease. The Court, however, did not discuss Section 234 in its decision, but it is possible that the Court silence on that point meant that it was just not persuaded by the point.
All of the above applies to cooperatives with proprietary lease provisions like the one above, but it also could have reaching effect for condominium as well. As stated, this decision was by the First Department, Appellate Division which governs the Courts in Manhattan and the Bronx. If you’re a cooperative in other places in New York like Brooklyn, Long Island, Westchester, etc., the Courts governing your cooperative would not be bound by the decision but could decide that they are persuaded by the decision.
If you’re a condominium, you should review your bylaw provision on the reimbursement of legal fees and expenses. If it allows you to recover legal fees and expenses even if the other side prevails, then a court could apply the Krodel decision and hold that your provision unconscionable and unenforceable. As stated, the ability for a cooperative or a condominium to recover its legal fees and costs from a defaulting shareholder or owner is very important.
Click here to read the Court’s decision.
January 1, 2019 was the due date for Florida condominiums with 150 for more units to have a compliant web portal available for unit owners to access a laundry list of official records. The Florida lawmakers originally set July 1, 2018, and then extended it to January 1st. If you are a condo in Florida with 150 for more units, you need to comply.
If you are a property manager, attorney, accountant, insurance broker or other professional serving such a condo, you ought to take care to advise them that they need to comply. Otherwise, there are consequences for them but also for you.
If you’re general counsel and don’t advise your condo client that they need to comply, you arguably expose yourself to professional liability. Same goes for property management companies and other professionals who ought to be advising their clients to comply with the law.
We have heard from the insurance industry that if condos are supposed to comply and don’t, there are all sorts of insurance consequences like statutory fines and penalties not covered by D&O insurance, willful non-compliance not indemnifiable to board members, non-compliance a breach of fiduciary duty by board members and non-compliance exposing CAM’s to professional liability claims under their E&O which may or may not apply.
All it takes is one owner in a condo with 150 or more units (very likely) to request web portal access to the requisite official records, which triggers consequences that any condo should avoid.
Indeed, there are significant consequences which will be implicated if an applicable condo does not have a web portal up and running now that the January 1, 2019 deadline has happened.
Indeed, Florida Statutes Section 718.111 (12)(c)(1) (“Official Records”) provides that:
Office of the Board – Instant, Easy Compliance with the New Florida Web Portal Law
Here are 3 violations issued by NYC to the Farragut Gardens Condominium at 538 East 86th Street in Brooklyn, because of short term rental violations. In that condo, just 1 unit was short term renting.
The NYC Office of Special Enforcement is issuing violations to condominiums and cooperatives because of short term rentals. Indeed, NYC is warning property managers, owners and hosts that:
Violations of Short Term Rental Restrictions like the ones below will be issued to property owners including condos, coops and other community associations, and that property owners must “ensure their properties are maintained in a safe and code-compliant manner at all times.”
NYC’s position, affirmed by the Courts, is that lack of knowledge by the condo or coop is not a defense.
If condos and coops are proactive by registering their rental restrictions publicly with Know Your Rental™, they will have some mitigation evidence in response to violations like this. Registration should be a part of a building’s compliance effort. Know Your Rental™ (https://knowyourrental.org/why-kyr/) is an inexpensive way towards fulfilling a condos or coops short term rental compliance responsibility; particularly when thousands of dollars in fines could be issued which are not covered by insurance.
New York City coops, condos and other community associations must take action to ensure they are in compliance with short term rental rules. If not, it will be difficult to defend against the thousands of dollars in fines that NYC is imposing for violations. And, lack of knowledge of the illegal short term renting, is not a defense.
In response to illegal renting on short term rental sites like Airbnb, NY State and NYC has been enacting new regulations and starting to enforce them by issuing violations with significant fines. Short term rental violations are seen as important public concern because buildings with short-term rentals in NYC and around the world are reporting that they suffer from life, health and safety problems because of transient tenancy.
NYC’s position is clearly that lack of knowledge that short term renting is happening in a building is no defense to a violation and fine. The Appeals Court in Manhattan just agreed upholding a $53,100 fine. NYC has been warning owners, property managers and hosts that violations will be issued to the property owner even if tenants are doing the illegal short term renting. See NYC Office of Special Enforcement warning.
The $53,100 fine against the 264 unit building at 360 West 43rd Street in Manhattan, should be “a shot in the arm” for NYC coop and condo boards. Even though only 3 of the 264 units were caught illegally short term renting and the owner claimed it didn’t know, NYC was steadfast in its position that ignorance is no defense.
According to the City, owners have the responsibility to maintain the premises and to be up to code. For example, any transient use in the building requires full compliance with applicable fire-alarm and sprinkler requirements, and the owners are legally responsible for its tenants’ illegal use of the premises.
According to a unanimous panel of the Appellate Division, First Department, the violations issued by NYC were “supported by substantial evidence” and the building’s attempt to get out of the $53,100 fine by arguing lack of knowledge was “unavailing”.
Buildings should be taking action to bring awareness to short term rental restrictions that apply to them. NYC prohibits renting for less than 30 days in most cases, but a condo or coop may not allow it for less than 1 year. It is important to make sure that people know your rental restrictions and the jurisdictional ones that apply to you.
Know Your Rental (knowyourrental.org) is a new official building registry which buildings can use to inform people worldwide of the short term rental restrictions applicable to their building. If you are registered and taking such proactive measures to try to comply with the law and informing the public of the short term rental restrictions, you can raise that as a part of your defense if you’re issued a NYC violation and fine. Coops, condos and community associations need to be proactive to avoid short term rental violations and the steep fines; particularly, now that lack of knowledge is not going to help them.
We have been hearing a lot lately about Airbnb and other short-term rental sites battling with local jurisdictions like NYC and Boston about the rental restrictions there. Throughout the world we are seeing jurisdictions starting to regulate or outlaw short term renting. What we are not seeing is community associations and buildings flexing their muscles in the equation.
It’s at the building level that there are reports of crime, noise and other life, safety and health issues. Neighbors are faced with short term renters infiltrating their home buildings. During the New York Marathon this year, one condo reported hundreds of short term visitors in their lobby and health club during race weekend, complaining of safety concerns – who are these people in my building? During college football season, towns where top teams play come to life in the short term rental market where millions of dollars in rents are earned.
How do the buildings protect themselves? Finally, a company launched Know Your Rental (knowyourrental.org) where a building can have a voice and publish their rental restrictions in an Official Registry that renters can search before accepting a rental. If it is illegal to rent in a particular building on a short term basis, renters will not rent there. Who wants to book a family vacation in NYC only to find out after you’re in the apartment that the rental is illegal.
Buildings could remind their own owners about rental restrictions, but renters from around the world previously had no way of knowing in advance whether a rental was legal. Indeed, on Airbnb, prospective renters don’t even know the address until booking. At that point the renter needs to know the building’s rental restrictions so the renter can decide whether to proceed with the rental. If the rental agency is connected with Know Your Rental, owners listing their property for rent and renters both will be automatically notified before proceeding.
At just $100/yr for visibility worldwide, Know Your Rental has tremendous value. It notifies renters of your building’s particular restrictions (as well as your jurisdiction’s restrictions when they register). You can tell your owners that you are taking proactive measures to protect them and your building from wrongful renting, and indeed deter illegal renting.
© 2026 Colbert Law LLC Attorney Advertising. Prior results do not guarantee a similar outcome.
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