As of December 22, 2021, cooperatives have received 8 exemptions from the Housing Stability and Tenant Protection Act, which otherwise restricts landlords' rights as to their tenants.

When the Housing Stability and Tenant Protection Act came out, we repeatedly tried to explain to co-op boards, property managers (managing agents), real estate brokers, local NAR boards, and courts, amongst others, that this law applied to co-ops regardless that it clearly was not the intent of the legislature. To a non-lawyer intent of the legislature matters, to a lawyer the rules of statutory interpretation matter and you never get to the intent of the legislature if the statute is clear on its face, which the Housing Stability and Tenant Protection Act is. You see, co-ops are landlords and their shareholder-owner-occupiers are tenants. This is longstanding settled law, which  created a huge predicament for co-ops. 

Thankfully, roughly 2 years later, the law is finally fixed as follows:

• GOL 7-108(1-a), the deposit or advance limit of one month’s rent will no longer apply to owner-occupied cooperative apartments;
• RPL 226-c, the notice requirement for rent increases of 5% or more / non-renewal will no longer apply to owner-occupied cooperative apartments;
• RPL 238-a(1)(a), the preclusion of charging fees to review applications will no longer apply to  compensate managing agents and/or transfer agents for the processing, review, or acceptance of such prospective tenant’s application to become a shareholder of such co-op; 
• RPL 238-a(1)(b), the cap on fees for applications of $25 is inapplicable to applications from prospective shareholders to co-ops, but the limitation of only charging up to the actual cost remains;  
• RPL 238-a(2), late fees are now permitted on owner-occupied cooperative, but only up to 8% of monthly maintenance fee and only where the proprietary lease or occupancy agreement is updated to reflect such percentage;
• RPAPL 702(2), the limited definition of rent for purposes of a judgment in a summary proceeding is inapplicable to owner-occupied cooperatives to the extent that the proprietary lease or occupancy agreement is updated to reflect a different definition;  
• RPL 235-e, the 5-day non-payment of rent notice does not need to be sent by certified mail to co-op owner-occupants to the extent that the proprietary lease or occupancy agreement is updated to reflect a different method of serving notice; and 
• RPL 234, attorneys’ fees may be awarded to either party in the event of a default judgment concerning a co-op owner-occupant to the extent that the proprietary lease or occupancy agreement is updated to reflect the availability of such fees. 

A law that passed the House in May and is before the Senate (The Comprehensive Debt Collection Improvement Act or “CDCIA”) could force lenders to slam the breaks on issuing mortgages to co-op purchasers.

This law reverses a 2019 decision from the US Supreme Court, Obduskey V. McCarthy, and would cause the Fair Debt Collection Practices Act (FDCPA) to apply to businesses engaged in non-judicial foreclosures, which applies to co-op mortgage loans.

In other words, the CDCIA would hamstring co-op lenders' ability to utilize third-parties to collect their loans (e.g., the law limits the number of times a debtor may be reached, it requires that contact be ceased when the debtor so requests, it creates tons of exposure to damages and attorneys' fees, etc.). It would also suppress important information from a credit report, such as forbidding credit scoring models from using medical debt as a negative factor.

As you can certainly deduce, if the CDCIA passes the Senate and is signed by the President, lenders will likely have stricter qualification terms and may even raise rates on co-op mortgage loans that qualify.

Are the protections in the CDCIA worth the law's chilling effect on co-op loans? Should the Senate change the law? Should it just vote it down?

Do you think the CDCIA will lead to fewer co-op transactions?

Traditionally, boards are protected from suit under what is called the Business Judgment Rule, which means that actions that are undertaken in good faith and in furtherance of the community, no matter how foolish, can not give rise to board liability. The only real exceptions to this rule are for acts of self-dealing or discrimination. 

However, poorly drafted By-Laws can change that standard and expose boards to liability. 

This was just highlighted in the recent Appellate Division case of Matter of Kotler v 979 Corp.

In the case there was a dispute about the assignment of a cooperative's proprietary lease on the lessee's death. The Court found that the by-laws supplanted the Business Judgment Rule with a heightened Reasonableness standard when the document stated "consent shall not be unreasonably withheld to any assignment or transfer of this lease."

Then, the board lost the case and was told to pay damages and attorneys' fees. 

Attention boards, managing agents (property managers), and board counsel - don't just copy another board's by-laws - think for yourself.