As May maintenance, rent and common charges are hopefully being paid and collected, we wanted to address the current issues and problems facing buildings who instead are starting to see arrears accumulate from their shareholders, unit owners or commercial tenants.  While much of the discussion in the news relates to the traditional landlord-tenant relationship, it is important to understand in what manner this affects your cooperative and condominium.  Co-ops are generally considered landlords and are bound by many of the same proscriptions that apply to conventional landlords. Condominiums are not landlords and the rules relating to rent do not apply to common charges.

Maintenance, Rent and common charge collection
On Thursday May 7, 2020, Governor Andrew Cuomo signed Executive Order 202.28 which, among other things, extended the moratorium on eviction and mortgage foreclosure proceedings until August 20, 2020.  The moratorium applies to both residential and commercial properties which are owned or rented by someone eligible for unemployment insurance “or otherwise facing financial hardship due to the Covid-19 pandemic.” This would apply to cooperative shareholders who are having financial consequences related to Covid-19 (Query:  How about shareholders who were in default before Covid-19 struck?).

Condominiums do not face the same legal restriction because common charge liens are not mortgages (it should be noted however that New York’s real property law does provide that common charge liens may be foreclosed in  like  manner  as  a  mortgage  of real property so an argument could be made that common charge foreclosures should be stayed in the same manner as a foreclosure action).

It is important to note that nothing in this order provides for a waiver of any rent or mortgage payment; it simply imposes a stay on the foreclosure and/or eviction process. 

Use of Security Deposits
The Executive Order also allowed residential tenants to have their landlords agree to use any security deposit on account to pay outstanding rent.  The order is clear that it is at the tenant’s option that the security deposit may be applied to outstanding rent and further provides for replenishment of the security deposit by tenant in monthly installments of 1/12^th the amount owed no less than 90 days from the date of usage of the security deposit.  Landlords are not allowed to harass or force tenants into agreeing to this provision. Some cooperatives had shareholders establish maintenance escrow accounts as a condition of their approval to a purchase.  It is not clear whether such escrow agreements constitute security deposits under the law and the answer may very well be dependent on the terms of the agreement.  Check with counsel before you invade such accounts for any unpaid maintenance.

Late Fees
The Executive Order further prohibits any landlord from demanding or seeking any fee or charge from a residential tenant for late payment of rent during the period March 20 to August 20, 2020.  While cooperatives would be barred from imposing late fees by this section, condominiums do not face the same prohibition on imposing late charges.  However, bear in mind, that if the outstanding common charges are litigated, a court may not be sympathetic to a condominium’s imposition of a late charge on a unit owner who struggled to pay common charges as a result of a Covid-19 related financial hardship issue.
 
Service of Demands
The question has been raised whether a landlord can serve the statutorily required 14 day rent demand as a condition precedent to commencing a non payment proceeding without violating the eviction moratorium.  On her web page, New York Attorney General Letitia James claims that serving such a notice is a deceptive business practice and violates the law.  The website says:

"It is a deceptive business practice to threaten an eviction or demand a tenant leave when there is a moratorium on evictions and the courts are closed. Section 349 of the General Business Law prohibits landlords from engaging in deceptive business practices. Sending a false or misleading notice to tenants violates the law and could subject the landlord to financial penalties.

A landlord cannot evict you without going to court. Right now, the courts are not allowing landlords to file new eviction cases.

A notice that threatens that you will be evicted before the moratorium on filing eviction cases in court is over is illegal. Any notice that demands that you leave before the moratorium on evictions is over is also illegal."

A notice to cure usually does not contain the same demand that the tenant vacate the premises and should not run afoul of the Attorney General's position.  A notice of termination does contain such language. While the Attorney Genera’s web page is not the same as law, Landlords should certainly confer with counsel before deciding to serve any preliminary eviction notice.

Status of Court Proceedings
While the Courts have started to address some pending matters with virtual conferences, the local courts, including Housing Court in the City and District Court on Long Island, still do not allow new actions to be commenced.  As of now, there has been no date set for when these Courts will reopen but the Executive Order would appear to bar new nonpayment filings where the tenant has been financially impacted by Covid-19 before August 20 (even if the Courts reopen before that date).  We anticipate that once new actions are allowed to be filed there will be a huge backlog of cases filed and the Court will set rules and procedures as to how to handle the anticipated volume.  While we do not know what those procedures are, we anticipate that nonpayment proceedings will take much longer to reach resolution (unless a settlement is reached) and that adjournments could cause lengthy delays between court proceedings.  Co-ops will of course be impacted by these schedules.  There will be tremendous pressure to settle cases so consideration should be given to resolving disputes and arranging payment schedules before going to court.

Actions by condominiums to collect their common charges also cannot be filed until the Courts reopen.    Common charge liens can be filed. Once the Courts reopen, these actions can be filed immediately and should not be impacted by the August 20 moratorium on mortgage foreclosures.
 
Our Advice
With all of this uncertainty and anticipated delays, we urge all of our buildings to speak with their shareholders, tenants and unit owners as soon as they fall into arrears and try to reach a fair and workable solution for the payment of those arrears especially if they were the result of Covid-19 financial issues.  Any agreement reached should be memorialized in writing.

Litigation should be reserved for those instances where reasonable agreements cannot be reached or are not adhered to or where the individual’s arrears were not caused by Covid-19 but predated the pandemic.  We suggest you review any of those situations with counsel before deciding how  to proceed.

We urge all of our clients, associates and friends to stay safe and healthy.  If you have any questions, feel free to call or email us.  We are all working remotely.