Co-op and condo shareholders and owners are obligated to pay monthly maintenance fees which contribute towards the building’s operating account, reserve, and any petty cash funds. The amount an individual pays depends on various variables such as luxury amenities and the unit’s sale price. For co-ops, the maintenance fee is determined by the percentage of shares the shareholder owns in addition to the building’s real estate tax. Condo owners own the title of their property separately so these fees are not added onto their maintenance fees (often referred to as “common charges”). However, do shareholders and owners have a right to withhold their maintenance fees if a conflict arises?
Disputes between shareholders or owners and the building’s managing board often lead to the threat or action of withholding maintenance payments. However, is this response permitted by law? Essentially, no. Co-ops are organized under and governed by the Business Corporation Law (BCL) of New York State, which requires shareholders to follow the proprietary lease and pay monthly fees. In co-ops, shareholders have a tenant-landlord relationship with the corporation and the proprietary lease gives them the right to live in their apartment. Shareholders are obligated to pay the monthly maintenance fee and if the shareholder fails to make a payment it would be a breach of the proprietary lease. Therefore, the corporation would have the option of terminating the lease, beginning the eviction process, and selling the shareholder’s shares at a fair market value. Once the board deducts the amount owed in maintenance fees, the rest would be returned to the shareholder. To avoid such drastic measures, if a shareholder is to withhold the maintenance fee they could do so by “deposit[ing] the maintenance money in escrow.”
Withholding co-op maintenance fees usually arises when there is a dispute regarding the Warranty of Habitability, which can be enforced against the corporation. Under New York Real Property Law §235-b, whereby the “premises shall not be subjected to any conditions which would be dangerous, hazardous or detrimental to their life, health or safety. When any such condition has been caused by the misconduct of the tenant or lessee … it shall not constitute a breach of such covenants and warranties.” Although the law does not permit withholding the maintenance fee, people often view the move as leverage and “might have a chance of resolving a long-term dispute by escrowing maintenance.” However, it is important for all shareholders to consult their attorney before as they can subsequently be liable to pay for the co-op’s legal costs in addition to any fines or penalties.
Defaulting on common charges in a condo works a little differently because condo owners do not have the same tenant-landlord relationship and therefore the Warranty of Habitability argument cannot be applied. When a condo owner withholds common charges it is a direct breach of the building’s by-laws. If a conflict arises between the owner and the board, it is best to consult an attorney to decide what steps need to be taken in order to comply with the law and avoid paying for the board’s costs and fees.