Q: I bought a co-op apartment in Queens about 35 years ago and I’ve been renting it out. About 15 years ago, the co-op imposed a 10 percent surcharge on the maintenance fees for apartments that are rented out. That increased to 20 percent about five years ago. Should my apartment have been grandfathered in, exempting it from the surcharge? Does a co-op even have the right to impose this extra fee? The board claims that the co-op does have the authority, but isn’t it discriminatory to apply the maintenance surcharge only to nonresident owners?
A: A co-op board has wide latitude to operate in the best interests of the building and the shareholders under the business judgment rule. However, you should check your governing documents to see what they say about subletting.
Even if the board is within its rights, that doesn’t necessarily mean you should be paying 20 percent.
The proprietary lease should state whether subletting is allowed, and under which conditions. But the fee might not be listed. In some cases, leases give boards broad authority to set conditions for the approval of a sublet, which may include the right to impose a maintenance surcharge like the one you describe.
“The board’s decision to do so, and to increase or decrease the fee, is governed by the business judgment rule, which permits it to make decisions in good faith on behalf of the shareholders and within its authority under the co-op’s governing documents,” said Andrew I. Bart, senior counsel with Kagan, Lubic, Lepper, Finkelstein & Gold, LLP.
Charging an extra fee for shareholders who sublet their apartments is not uncommon. The board must treat shareholders equally, but imposing this surcharge, and occasionally altering its conditions, would not be discriminatory or illegal if authorized by the proprietary lease, said Steven S. Anderson, a lawyer who works in the condominium and co-op practice at Becker. And there does not appear to be grounds for you to avoid the surcharge because you were subletting your unit before it was imposed.
However, 20 percent does seem a bit high, and could be deemed unreasonable in court, Mr. Anderson said. Typical surcharges are around 5 or 10 percent. Perhaps the board, in knowing how much you are charging your subletter to rent the apartment, assumes that you can easily pay it. Depending on how much rent you’re charging, you might consult with a lawyer to evaluate whether demanding a lower fee is worth it.
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