Co-ops are now exempt from Housing Stability and Tenant Protection Act – Real Estate and Construction

United States: Co-ops are now exempt from the Housing Stability and Tenant Protection Act

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As we anticipate all that 2022 has to offer, we want to make sure that you are up to date with some important developments impacting co-ops that have taken place at the end of 2021. On December 22, 2021, Governor Hochul a signed a law that amended articles of the Law on General Obligations, the Law on Real Estate and the Law on Actions and Procedures Relating to Real Estate in order to exclude tenant-shareholders of cooperatives from certain provisions of the Housing Stability and Tenant Protection Act 2019 (the “HSTPA”).

Co-operatives can now take the following actions:

  • Cooperatives can collect a security deposit from shareholders without restriction as to the amount. For example, a board of directors of a cooperative may require as a condition to agree to a purchase that a buyer pledges an amount such as twelve months of maintenance.. The one month rent limit for security deposits under the HSTPA no longer applies to co-ops. (General Obligations Law § 7-108)
  • Co-operatives are permitted (1) to collect the fees payable to managing agents and / or transfer agents for the processing and review of applications from potential tenants, and (2) to collect the actual cost of any background checks or the solvency of potential tenants. The $ 20 reimbursement limit for background and credit checks under HSTPA does not apply to co-ops. (Real Estate Property Law § 238-a)
  • Co-ops can charge late fees of up to 8%, with no dollar limit, if allowed by exclusive lease or occupancy agreement. Co-ops are exempt from the late fee limit of $ 50 or 5% of HSTPA’s monthly maintenance. (Real Estate Property Law § 238-a)
  • Co-ops can recover fees, charges, penalties and assessments in addition to rent in summary proceedings, if permitted by the exclusive lease or occupancy agreement. The HSTPA ban on collecting fees, charges and penalties in summary proceedings no longer applies to cooperatives. (Law on Actions and Procedures Relating to Real Property § 702)
  • Cooperatives are allowed to obtain attorney’s fees in the event of default judgment against a shareholder, if this is permitted by the exclusive lease or the occupancy contract. The HSTPA restriction preventing an owner from recovering attorney fees on a default judgment does not apply to co-ops. (Real Estate Property Law § 234)1
  • Co-ops can send a notice of default to rent by methods other than certified mail, if such methods are permitted by the exclusive lease or occupancy agreement. Co-ops are excluded from the HSTPA requirement that notices of rental default must be sent by certified mail, and must strictly follow the notice requirements in their constituting documents. (Real Estate Law § 235-e)

Footnote

1. Please note that Governor Hochul also enacted Section 234-A of the Real Property Act, which prohibits landlords from assessing legal costs associated with operating rental accommodation unless authorized by a court order. We do not believe that this law is intended to apply to cooperatives, and we anticipate that a clarifying amendment will be enacted in the near future. In the meantime, we believe that co-ops can continue to charge legal fees when authorized by property leases.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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