Q&A: Imposing a Leasing Fee: Legal or Illegal?

I live in a New York City condo. There are a total of 204 apartments, 140 of which are privately owned and rented by their owners, and 64 which are occupied by their owners. My question is the following: Can 6 members of a board of 7 decide to impose a leasing fee of approximately $60 to $80 dollars per apartment on each of the 140 owners? The following points are to be considered: 1) of the 6 members of the board, 5 did not have a rented apartment, and one member who possessed 2 rented apartments abstained from voting; and 2) is it true that 5 members of the board can make such an important decision without a referendum against the majority of owners, who would have refused if they were consulted?

—Perturbed in Prospect Heights

“My gut reaction is that it would be very difficult to overturn this action,” says Matthew J. Leeds, a partner with the Manhattan-based law firm of Ganfer & Shore, LLP. “Most proprietary leases allow the board to fix a reasonable fee to cover such matters as administrative and legal expenses in connection with an application to sublease an apartment. If as the question implies, the amounts are collected one time in connection with an application, or even annually, the amounts cited in the question do not seem excessive, especially as the board would likely argue that they are commensurate with the actual burden to the corporation.

“It might be argued that the fees should be levied only prospectively as to new leases because consent to existing leases was given without this limitation in place.

“The administrative fee is to be distinguished from a more burdensome amount in the nature of a “flip tax,” which is typically a much larger amount and even a significant percentage of the rent. In that instance, the amount normally can only be levied if there is some authority for the board to do so in the proprietary lease or the bylaws. (And, if not, to amend those documents would typically involve the vote of a super-majority of shareholders.)

“Finally, the questioner comments on the composition of the board. First, by saying that six board members so acted, it is assumed that a valid vote was taken at a meeting at which the result was a 6-1 majority. A majority of members of the board generally cannot constitute an act of the apartment corporation except at a valid meeting duly called with all directors having gotten the required notice and an opportunity to attend.

“When the questioner says that some members were renting out their apartments and others were not, if the board is otherwise validly composed, it seems likely that they would have authority to act. An argument might be made that there is some conflict of interest on the part of some members of the board, but in fact that is always the case when the board votes on certain matters. For example, if the board votes against an increase in maintenance charges, it is hard to suggest that they had a conflict of interest, because in fact they would have to pay them—this would be true of all tenant-shareholders.

“On the other hand, the board members have a fiduciary obligation to act in the interests of the apartment corporation and not their own self-interest, so it would also be a question whether board members who rented out apartments could vote against the fees just because they would not want to pay the fee, rather than considering the financial requirements of the apartment corporation.”    

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Comments

  • I'm a shareholder in a coop for 29?years . The mortgages have been paid to the city and state. I was told I could not sale my coop at market value . The board has now decided to add a flip tax is this legal since the amendment should have been created three years ago when the coop was paid? Also,if so what documents have to be amended to make this flip tax binding. I have three governing docs. The propietary lease, bylaws, offering plan. Please advise. Thank yiu