Q: I am on the board of a 10-unit co-op brownstone in Harlem. We like to keep the maintenance fees low, and we count on every shareholder to pay in a timely way. I’ve lived here for 11 years, and there is one shareholder who never pays on time. We have to chase him down to remind him. He’s a nice guy, but he is an adult and he’s not wanting for money. His behavior is frustrating to us, and unfair. We feel we’ve exhausted the personal approach. Can we require him to set up autopay? How can we legally compel him to pay?
A: In a smaller building like yours, one chronically late-paying shareholder can have a greater impact on the building’s finances.
“There have to be some ramifications if he always pays late,” said Michael J. Ciarlo, a partner who handles real estate disputes at Nadel & Ciarlo, P.C., in Manhattan.
Check the co-op’s 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 percent of the monthly maintenance cost as a late fee, if the lease allows for it, though there are exemptions for income restricted co-ops. (Generally, a co-op cannot impose terms like autopay on a shareholder if the lease doesn’t authorize it.)
If your 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. 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, Mr. Ciarlo said. It should also allow for the highest fee amount permitted by law, not specifically 8 percent, 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, said Steven D. Sladkus, a partner at Schwartz Sladkus Reich Greenberg Atlas LLP in Manhattan.
If that doesn’t get this 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,” Mr. Sladkus said, though he warned that following through with termination could be legally difficult.
For weekly email updates on residential real estate news, sign up here.
