Q&A: Hidden Rental Surcharge

Q I own a co-op apartment that I rent. I am in compliance with the proprietary lease regarding renting the apartment. When I rented the apartment, I was told by the board that there is a 75% maintenance surcharge on rentals. I never questioned it until I happened to look through my proprietary lease and find that it states a 30% surcharge. I asked the board to show me a copy of the documents where the shareholders voted to change the proprietary lease and increase the surcharge. They are unable to find any documentation. Am I entitled to a refund for the difference and a reduction in the future?

—Unfairly Charged Tenant

A “You probably are entitled to a refund for the difference between the maintenance surcharge allowable as per the proprietary lease (30%),” says Michelle Maratto Itkowitz of the New York law firm Itkowitz PLLC, “and that which you were actually charged (75%) and a reduction of such charge going forward to thirty percent.

“Courts have generally held that a sublet fee is allowable as long as it is in the proprietary lease or otherwise approved by the shareholders. See McCabe v. Hoffman,138 A.D.2d 287, 290, 526 N.Y.S.2d 93 (1st Dept. 1988); Hatfield v. Herz, 109 F.Supp.2d 174, 188 (S.D.N.Y. 2000). New York courts have found sublet fees of a certain percentage of the sublessor’s profit, or rent received, is prevented by BCL 501(c), which prohibits differing treatment of owners of the same class of stock. See, e.g., Wapnick v. Seven Park Ave. Corp., 240 A.D.2d 245, 246-47 (1st Dept. 1997). However, it remains an open question whether co-ops can charge a percentage of the maintenance fee as a sublet fee. Richard Siegler and Eva Talel, Cooperatives and Condominiums: Constraints on Board Action — BCL §501(c), 3/5/2008 N.Y.L.J. 3, (col. 1).

“Therefore, absent any evidence of amendment of the proprietary lease by a vote of the shareholders, the co-op should not have charged you more than thirty percent of the maintenance charge.

“A New York court has stated that a similar claim against a co-op for overcharging in its sublet fee in violation of the bylaws stated a valid cause of action for damages. Bailey v. 800 Grand Concourse Owners, Inc., 199 A.D.2d 1, 604 N.Y.S.2d 562 (1st Dept. 1993). In addition, the New York Court of Appeals has held that issues regarding the interpretation of a proprietary lease should be resolved using ordinary contract principles. Kralik v. 239 East 79th Street Owners Corp., 5 N.Y.3d 54, 59, 832 N.E.2d 707, 799 N.Y.S.2d 433 (2005). If you had to litigate this matter, you would have a solid breach of contract claim against the co-op for breaching the terms of the proprietary lease.

“We offer, however, just one note of caution. Most shareholders do not have the unfettered right to sublet their apartments as it is well established that a board of directors is empowered with contractual and inherent authority to approve or disapprove the transfer of shares absent discriminatory practices prohibited by law. Aronson v. Crane, 145 AD2d 455, 456; Goldstone v. Constable, 84 AD2d 519, 520. Although we are certainly not suggesting that you should succumb to an unlawful sublet fee, you should also proceed without rancor. We suggest you write a letter to the managing agent, with a businesslike but non-antagonistic tone, outlining your proposal to deduct the amounts overbilled from future monthly payments until you and the co-op are even.”

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