Late last year, the New York State Supreme Court, Appellate Division, First Department issued a decision regarding the enforceability of an attorneys’ fees provision in a Manhattan cooperative’s proprietary lease.
In its decision in Krodel v. Amalgamated Dwellings Inc., the Appellate Division found that the attorneys’ fees provision was unenforceable to the extent that it allowed the co-op to recover attorneys’ fees from a tenant if the tenant commenced an action against the co-op, regardless of whether the co-op was or was not in default.
The court reasoned that such a provision amounted to an unenforceable penalty that would discourage a tenant from asserting claims against the co-op based on an alleged co-op default under the lease.
The proprietary lease provision that the court rejected is very common in proprietary leases across New York City.
In light of this decision, many co-ops will need to amend their proprietary leases in order to ensure that the relevant provisions are enforceable under current law.
Co-op boards are all too familiar with the issues that can arise when a tenant is in default of their obligations under a proprietary lease, and the board is obligated to spend tens or even hundreds of thousands of dollars in counsel fees. When this happens, boards have long relied on their ability to look to the tenant for reimbursement of these fees, which is now potentially in jeopardy. Additionally, this ruling raises future questions about condominium boards’ recovery of attorneys’ fees under similar situations and provisions.
All New York co-op and condominium boards should review and evaluate their attorneys’ fee recovery provisions to ensure they are in compliance with this current development in the law. We are happy to assist in this review and, if necessary, update your proprietary lease (co-ops) and or by-laws (condos).