Legal Responses to Defaults by New York Cooperative and Condominium Unit Owners- Part I

The efficient operation of a cooperative or condominium building in New York depends upon unit owners respecting and abiding by the rules contained in the governing documents. Unit owners in cooperatives should refer to their Proprietary Lease, while those in condominiums should refer to their By-Laws. In both cases, the building’s House Rules should also be consulted. As described in our website , those who own a cooperative or condominium unit have common legal responsibilities, including the payment of maintenance or common charges, adhering to house rules, compliance with renovation and subleasing restrictions, and the like. In the event that a unit owner fails to abide by the rules and regulations of the building, our firm has extensive experience in responding to defaults and enforcing compliance by the issuance of the proper legal notices as required by the applicable governing documents. Said procedures may lead to litigation or auctioning of the units, depending upon the development of the case.

Our first course of action is usually to discuss the specific breach with our client contact, be it the representative Board Member or managing agent for the building. If monies are owed, we identify the period of time for which the money is due and the type of charges, such as maintenance, common charges or an assessment and any late fees, interest or other penalty charges properly added. If the breach involves “behavior”, rather than money owed, we determine whether same relates to an illegal sublet, an unapproved alteration or even a behavior that may not fall neatly into any particular category, such as being too noisy or permitting “unreasonable” odors to escape from the unit. Our initial discussion will also identify if any prior written notices have been sent to the unit owner.

Following our initial fact gathering, the next step involves insuring that any further legal notices are completely in compliance with the building’s governing documents. Failure to comply with such details could invalidate legal notices and proceedings at a future date. This step is important because clients may become impatient and demand that actions be taken without regard to the requirements of the governing documents and because well-meaning but not legally trained managing agents often send “legal letters” which ignore the legal requirements contained in the governing documents.

Prior to sending the “warning letter”, we will verify the specific paragraph of the governing documents that has been breached and determine the means by which notice is to be sent (such as by certified mail) and the number of days allowed for the unit owner to cure the default before the next step is commenced. Even though many of the Offering Plans were drafted by a select group of attorneys and the subject buildings were formed during a cluster of years, each provision in each building’s governing documents is to be reviewed by us, as there are variations in the governing documents for each building. In any case, the warning letter prepared by us will identify the specific paragraph of the governing documents that has been breached and provide the proper number of days to cure as permitted by the governing documents. For instance, monetary cure timeframes are generally shorter than those for non-monetary defaults.

In addition, it is customary to order and obtain a lien search for a cooperative and a title search for a condominium, so that other parties who may have a security or other interest in the unit are properly notified. Those who obtain a loan secured by a cooperative unit usually execute a Recognition Agreement, also known as an Aztech Agreement, which obligates the cooperative to notify the lender of a default by a shareholder. Likewise, mortgages secured by condominium units contain default notification provisions. A lien or title search may also reveal tax liens, requiring notification of the lienor throughout the default procedure. After notification, certain parties take the opportunity to cure the default, should their security interest be lower in priority, or otherwise exert pressure on the unit owner to cure the default.

Should the time to cure as provided in the warning letter pass, our next step for our cooperative clients is to prepare a Default Notice. If the time to cure the Default Notice also expires, our cooperative clients would expect the submission of a Termination Notice. Of course, all Default and Termination Notices are legally compliant, in that they refer to the proper provision of the governing documents, are transmitted as required by said documents and allow the time to cure provided therein.