How to work with financially struggling shareholders

| Jun 8, 2020 | Uncategorized |

Countless New Yorkers are living in financial uncertainty. And, as some tenants in co-ops struggle to pay their rent or maintenance, co-op boards are starting to feel the pinch.

Many properties, like co-ops, require collective participation by occupants to help pay the building’s mortgage, staff and other expenses. But with many shareholders and commercial tenants dealing with economic strain, some properties are finding both the co-op and the tenants struggling to get by.

In these instances, co-op boards may need to consider appropriate strategies to negotiate payments with tenants. 

Arranging payments with tenants

Shareholders generally pay maintenance based upon the number of shares allocated to their units; commercial tenants pay based upon the terms of the negotiated lease.

Below are three basic tips boards can try to collect on necessary payments:

Encourage all tenants to pay as much as possible 

Shareholders and tenants need to be encouraged to pay as much as possible towards their obligations. Advise the tenants that the Board can be more flexible in payment terms and avoiding future litigation or notifying their lender of a default if the tenant has made a good faith attempt to pay what they can. Tenants who have received unemployment insurance or, in the case of commercial tenants, PPP grants, should be encouraged to use some of that money to help pay their maintenance or rent obligation.

Negotiate a later payment date for missed fees 

Find out when the tenants are returning to work or plan on reopening their business. The board can tie some of the payments to these dates. Given the substantial number of cases that landlord tenant court is likely to face when the courts reopen, taking hard lines and setting intractable deadlines may only result in an expensive protracted litigation to get monies which might have ben paid faster with a greater degree of flexibility.

Offer incentives

Under appropriate circumstances, the board may want to consider incentives to get tenants to pay. Receiving 90% of rent/maintenance now may be better than getting 100% over a longer period. Getting commercial tenants to pay their real property taxes (so that the landlord recovers out of pocket expenses immediately) may warrant a larger, better repayment period on unpaid rent.

Boards need to consider whether they are trying to save their existing commercial tenants or if they would like to recover possession of the premises in order to re-rent the space. 

These are trying times for everyone

Even as things slowly reopen, the future remains uncertain for many New Yorkers. New laws to deal with rent arrears are constantly being proposed. When tenants will be able to return to work or open their business is an everchanging target.

But when co-op boards and tenants work together, both parties may be able to better get what they need to survive. If there are shareholders or tenants who do not cooperate, a skilled legal professional with experience in this area of law can help you assert your rights.