A recent New York Supreme Court case, Elias v. 36 E. 69 Corp., has underscored the importance of understanding and adhering to lease terms and co-op bylaws in disputes over unpaid maintenance fees. The case centered on a cooperative’s attempt to terminate a resident’s lease and shares due to nonpayment of maintenance fees.
Key Takeaways for Property Managers and Boards
- Strict Adherence to Lease and Bylaw Terms: The court’s decision emphasizes the necessity of adhering meticulously to the procedures outlined in both the proprietary lease and the cooperative’s bylaws when addressing defaults in maintenance payments. Failure to comply with these procedures, even by a seemingly small margin, can invalidate a termination notice.
- Limited Grounds for Challenging Termination: The case highlights the limited grounds available for challenging a co-op’s decision to terminate a lease for nonpayment. As long as the co-op follows the prescribed procedures and acts in a non-discriminatory manner, its discretion in enforcing the lease terms is largely upheld.
- Covenant of Good Faith and Fair Dealing: The implied covenant of good faith and fair dealing exists in contractual relationships, but it does not override the express terms of a lease or bylaws. A co-op’s adherence to the lease provisions generally satisfies the covenant, even if the outcome is unfavorable for the shareholder.
- Board Discretion in Share Transfers: Co-op boards generally have broad discretion in approving or denying share transfers, as long as their decisions are not discriminatory. This discretion extends to situations where a shareholder in default seeks to sell their shares to avoid termination.
Property managers and boards should regularly review their proprietary leases and bylaws to ensure they are up-to-date and clearly outline the procedures for addressing defaults and terminations. They also should maintain detailed records of all communications and actions related to defaults, including notices, payment demands, and any discussions with shareholders. Using experienced counsel to make sure that lease provisions and termination procedures are applied properly is critical for a smooth collection process and provides a defense to shareholders who claim that the cooperative acted improperly.
Read the decision.
