Battle Between NYC and Airbnb Resumes

Since 2010, renting out apartments in multiple dwelling for a term less than 30 days has been illegal in New York State under § 4 of the New York Multiple Dwelling Law (the “N.Y. Mult. Dwell. Law”).  As discussed in our December 20, 2016 post “Airbnb Settles with New York State: New Developments in Short-Term, Rental Law,” in 2016, Airbnb challenged a new provision added to the short-term rental law, § 121 of the N.Y. Mult. Dwell. Law, which levied fines for posting advertisements for apartment rentals under 30-days. Airbnb challenged the new provisions because the law did not clearly identify who would be fined for violations of the law. The lawsuit settled after the NY Attorney General’s office clarified that the fines would not be levied against companies such as Airbnb who are merely hosting sites for rental posting and that, instead, the fines would be imposed against hosts who post short-term rental listings.

Airbnb’s battle in NY was recently reignited. On August 6, 2018, Mayor de Blasio signed into law an amendment to NYC’s Administrative Code that requires accommodation booking service companies, like Airbnb, to report the names and addresses of the hosts using their sites to the NYC Office of Special Enforcement (the “OSE”) every month; refusal to comply could result in civil penalties. The law is aimed at facilitating the OSE’s efforts to catch individuals who violate § 121 of the N.Y. Mult. Dwell. Law.  While Airbnb is still considering its options for challenging the new law enacted on August 6th, Airbnb is already challenging the scope of a subpoena served by NYC in connection with an existing short-term rental dispute. The subpoena requires Airbnb to turn over host and guest information for the last seven years in relation to NYC’s ongoing lawsuit against Big Apple Management, who allegedly illegally converted apartments into short-term rentals for tourists in seven of its buildings.

Unless Airbnb successfully challenges the latest amendment to the NYC’s Administrative Code, we can expect the OSE to take more aggressive efforts to curtail illegal short-term leasing by requiring Airbnb and similar companies to provide host information to facilitate enforcement. NYC landlords and co-op and condo boards can file a complaint with the OSE through NYC 311 by phone or online if there is suspected illegal short-term leasing activity in their buildings.  

This article was co-authored by Dominique Miller and Stephen M. Lasser, Esq.

Up in Smoke : Recently Passed Smoke Free Air Act Requires NYC Buildings to Implement Building Wide Smoking Policy Before August 28th, 2018

In order to discourage smoking throughout New York City, on August 28, 2017 the New York City Council passed Chapter 5 of the New York City Health Code, the Smoke Free Air Act.  The legislation includes NYC Administrative Code 17-506.1 which requires all class A multiple dwelling buildings, including cooperatives and condominiums, to create and distribute a building-wide smoking policy on or before August 28, 2018.  Failure to implement a smoking policy could result in violations punishable with civil fines.

The new law does not provide guidance as to the specific details to be included in the smoking policy.  Rather, it merely states that a smoking policy must be implemented, it must exempt current rental tenants and permanently exempt existing rent regulated tenants and must state, in detail, the indoor and outdoor areas where smoking is permitted or prohibited.  In addition, a copy of the smoking policy must be disclosed to the building residents annually by providing a copy of the smoking policy to all residents or posting the policy in a prominent location in the building.

In addition, cooperative and condominium boards must incorporate the smoking policy into the building’s governing documents.  Cooperative and condominium boards may also want to consider making their building smoke free, including within individual apartments.  However, implementing such a restrictive smoking policy covering apartment interiors would require a super majority vote of its owners to amend its proprietary lease or by-laws, respectively.

In any event, buildings should make certain the smoking policy is comprehensive and clear, accounting for the entire property, including, but not limited to, hallways, stairwells, terraces, all outdoor areas surrounding the building, sidewalk entryways, patios, rooftops, and courtyards.  This will help avoid issues when the smoking policy must be enforced.  In addition, the new law requires buildings to keep records of the smoking policy itself and proof of the annual notification of the smoking policy to the residents.  Any further changes to the smoking policy must also be disclosed to the building residents and properly documented.

Below is a sample smoking policy for informational purposes.

SAMPLE SMOKING POLICY

 

SMOKING POLICY

#. Smoking is not permitted in any of the common areas of the Building or within 25 feet the Building’s entrance.  [(Optional) Notwithstanding the foregoing, Building residents may smoke on the Building’s roof deck and in the Building’s courtyard backyard, provided they are considerate and try not to interfere with the use of these areas by other Building residents.]

Shareholders and all other Building residents, including their visitors and guests, shall only be permitted to smoke within an apartment if the shareholder takes all necessary measures to prevent smoke and odors from emanating from the apartment, including, but not limited to, installation and use of an air filtration system of a capacity satisfactory for the apartment, sealing of duct work, electrical outlets and switches and the closing of all gaps within the apartment capable of allowing smoke to emanate from the apartment. The Board of Directors, in its sole discretion, shall from time-to-time determine the adequacy of such measures.

For purposes of these House Rules, the definition of “smoking” includes the use of cigarettes, cigars, pipes, hookahs, electronic cigarettes and other smoke or vapor causing devices.

If a shareholder receives a notice of violation of this Smoking Policy and fails to comply or have the residents in his or her apartment comply with any requested remedial measures set forth herein within thirty (30) days of receipt of the notice, the shareholder of the offending apartment will be fined $250.00.  If the offending shareholder or resident continues to violate this Policy after the imposition of the $250.00 fine set forth herein, additional fines of $250.00 will be assessed against the shareholder of the offending apartment thirty (30) days later or on the first day of the next calendar month, whichever comes later, and such $250.00 fines will continue to be assessed on the first day of each calendar month thereafter until the smoking issue is reasonably resolved based on an assessment by Building Management and the Board of Directors.

This website and the blogs and articles therein are made available by the attorney or law firm publisher for educational purposes only and to give you general information and a general understanding of the law, not to provide specific legal advice.  By using this website and blog you understand that there is no attorney-client relationship between you and the website and blog publisher. The website and blog should not be used as a substitute for specific legal advice from a licensed attorney.

Law Requiring Notice of Interested Transactions Amended to Cover Condominium Boards

As you may recall from one of our previous newsletters, a new New York State law was enacted, effective January 1, 2018, which requires cooperative board members involved in interested transactions to provide disclosure of these transactions to the owners in their associations. (Here is a link to the previous newsletter https://lasserlg.com/new-disclosure-requirements-board-members/ )

On April 18, 2018, Governor Cuomo passed an amendment to this new law specifying that the law also covers condominiums. Although the wording of the April 18, 2018 amendment probably should have been more detailed, it seems clear that the intent of the law is to require condominium board members to disclose to the condominium’s unit owns on an annual basis whether any board members have engaged in interested transactions with the condominium. An interested transaction is a contract or business transaction with the condominium association in which a board member has a substantial personal financial interest. (E.g., a board member’s contracting company doing work for the condominium association.) We recommend that condominium board members and property managers consult with legal counsel to ensure compliance with this new law.

(Note: although the BCL and NPCL generally only apply to cooperatives and homeowners’ associations, it would be prudent for boards of unincorporated condominiums to follow the same procedures.) The responsibility for compliance with these new legal requirements falls upon the association. Therefore, as a practical matter, managing agents and board presidents should try to ensure compliance by their associations.

In order to comply with these new legal requirements, at least once each year the association must:

  1. Provide a copy of BCL Section 713, http://codes.findlaw.com/ny/business-corporation-law/bsc-sect-715.html (or NPCL Section 715, if applicable, http://codes.findlaw.com/ny/notforprofit-corporation-law/npc-sect-715.html) to each board member. (Practice Tip: each board member should be required to sign a form stating that he or she received a copy of the statute at the time it is distributed.)
  2. Provide an annual report to all owners that lists all contracts voted upon by the board which involved an interested board member or a report stating there were no interested contracts voted upon by the board. The annual report must include the following information for each specific contract that involved an interested board member:a. A description of the work or services being performed, information on the contract recipient, and the amount and purpose of the contract;b. A list of all meetings held by the board to discuss or vote on the contract, including board member attendance, how each board member voted, and the results of the vote; andc. The date the contract would be and remain valid.

    d. Each board member must sign the annual report.

    e. If during the year there were no contracts voted upon which involved an interested board member, the board members must all sign and send to all owners a disclosure statement stating that “No actions were taken by the board that were subject to the annual reporting requirements pursuant to Section 727 of the BCL (or Section 715 of the NPCL).”

One practical way to comply with these new disclosure requirements would be to distribute the annual report together with the annual meeting notice which is sent to all owners each year prior to the association’s annual meeting.

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New Disclosure Requirements for Board Members

A new New York State law was recently enacted, effective January 1, 2018, which requires board members involved in interested transactions to provide disclosure of these transactions to the owners in their associations. The new law adds a new Section 727 to the New York Business Corporation Law (the “BCL”) and a new Section 519-a to the New York Not-for Profit Corporation Law (the “NPCL”) to ensure that boards are aware of the conflict of interest laws which apply to them and so owners are notified of any interested transactions. An interested transaction is a contract or transaction in which a board member has a substantial financial interest. (E.g., a board member’s contracting company doing work for the association.) (Note: although the BCL and NPCL generally only apply to cooperatives, it would be prudent for boards of homeowners associations and unincorporated condominiums to follow the same procedures.) The responsibility for compliance with these new legal requirements falls upon the association. Therefore, as a practical matter, managing agents and board presidents should try to ensure compliance by their associations.

In order to comply with these new legal requirements, at least once each year the association must:

1. Provide a copy of BCL Section 713, http://codes.findlaw.com/ny/business-corporationlaw/bsc-sect-715.html (or NPCL Section 715, if applicable, http://codes.findlaw.com/ny/notforprofit-corporation-law/npc-sect-715.html) to each board member. (Practice Tip: each board member should be required to sign a form stating that he or she received a copy of the statute at the time it is distributed.)

2. Provide an annual report to all owners that lists all contracts voted upon by the board which involved an interested board member or a report stating there were no interested contracts voted upon by the board. The annual report must include the following information for each specific contract that involved an interested board member:

a. A description of the work or services being performed, information on the contract recipient, and the amount and purpose of the contract;

b. A list of all meetings held by the board to discuss or vote on the contract, including board member attendance, how each board member voted, and the results of the vote; and

c. The date the contract would be and remain valid.

d. Each board member must sign the annual report.

e. If during the year there were no contracts voted upon which involved an interested board member, the board members must all sign and send to all owners a disclosure statement stating that “No actions were taken by the board that were subject to the annual reporting requirements pursuant to Section 727 of the BCL (or Section 715 of the NPCL).”

One practical way to comply with these new disclosure requirements would be to distribute the annual report together with the annual meeting notice which is sent to all owners each year prior to the association’s annual meeting.

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Unpaid Condo Common Charges on Credit Reports

Approximately one year ago, a data aggregation company based in California named Sperlonga entered into an agreement to start providing condominium and HOA owner payment and account status data to the credit reporting company Equifax.  It is our understanding that Sperlonga charges a monthly flat fee to the condominium or HOA for this service or a fee based on the number of account delinquencies it reports to Equifax.

As many property managers and board members know from first-hand experience, due to the weak NY laws governing condominiums and HOAs, collecting common charge payments can be an expensive and frustrating process.  Until approximately one year ago, it was not possible to report common charge delinquencies on a credit report until there was legal action and a judgment obtained.  Now delinquent owner accounts can be included on credit reports approximately 60 days after payments are past due.  In addition to adversely affecting owners who do not pay their common charges on time, if a condominium or HOA enrolls all of its units into this program, not just the delinquent ones, then the owners who pay on time should have their credit ratings enhanced.

It appears that one reason that this technology has not been utilized much in NY yet is because many  NY management companies use different bookkeeping software programs than those that are used in other parts of the country where this service has been popular.  As a result, the new technology cannot interface with the NY management companies’ bookkeeping software.  Because property management bookkeeping software is expensive and difficult to change, this new technology may not catch on in NY until there are some technological advances.  Additionally, there are some related Debtor and Credit law issues that will probably get worked out in other states first, which will hopefully enable NY condominiums and HOAs to eventually implement this technology free of any legal challenges and less potential liability.

(Disclaimer: This article is not intended to provide legal advice or to explain the intricacies of this new technology.  If you are interested in this new technology, you should direct inquiries to the service providers.)

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Late Payment of Common Charge Fees by Delinquent Unit Owner Deemed to Be an Admission of Liability: Condo Board Entitled to Recover Late Fees and Legal Fees

Landlords and condominium boards frequently have to sue tenants and unit owners who fail to pay their rent or common charges in a timely manner.  This is an unfortunate fact of life in the real estate world.  In these situations, courts have typically been very stingy when awarding late fees or legal fees to the landlord or condominium board even though the language in the lease or by-laws the lawsuit is predicated upon requires the delinquent tenant or unit owner to pay late fees and reimburse the landlord or condominium board for the legal fees incurred commencing and adjudicating the lawsuit.

In these types of lawsuits, the delinquent tenant or unit owner often pays all base rent or common charges owed just prior to eviction or foreclosure, and then the presiding judge typically strongly encourages the parties to settle and asks the landlord or condominium board to waive late fees and to accept less than half the legal fees owed.  In these situations, if the landlord or condominium board refuses to settle, the judge may end up awarding much less than half of the late fees and legal fees.  This is not a fair result for the landlord or condominium board because it basically results in an interest free loan to the delinquent tenant or unit owner and encourages untimely payment and litigation.

In 2016 (technically December 15, 2015), this office won an appeal that appears to be a game changing decision for condominium boards dealing with this issue.  (Sorry, the decision only applies to condominiums boards not landlords.)  In the case Board of Managers of One Strivers Row Condominium v. Giwa, 134 A.D.3d 514 (1st Dept. 2016), the Appellate Division, First Department ruled that payment of common charges by a delinquent unit owner after a condominium board has commenced legal action against such owner is an admission of liability, which entitles the condominium board to collect late fees and legal fees under such circumstances.  Specifically, the court determined that $42,037.32 in late fees and legal fees was “supported by the record and is not unreasonable.”  This is a departure from prior case law where typically courts have only awarded a clear winner legal fees at the bitter end of a knock-down, drag-out lawsuit.  In the Board of Managers of One Strivers Row Condominium case, the appellate court is stating clearly that the fact that the condominium board even had to commence litigation to collect payment was a sufficient basis to entitle the condominium board to the recovery of late fees and legal fees.

In sum, the new precedent established by this appellate court decision should save condominium boards and their associations thousands of dollars by forcing unit owners to pay on time or suffer the consequences of having to pay the condominium board late fees and legal fees if a lawsuit is commenced.  If a lower court tries to force settlement on these items, there is now a binding appellant precedent, which holds that these items must be paid by the delinquent owner.

 

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Airbnb Settles with New York State : New Developments in Short-Term Rental Law

Airbnb is a global technology company with huge revenues that facilitates apartment rentals by owners and tenants to third parties, often tourists, on a short-term basis.  Airbnb reached a settlement with New York State earlier this month, which dropped the lawsuit Airbnb brought challenging a new law that went into effect in October 2016, which would have levied fines from $1,000.00 to $7,500.00 for advertising apartment rentals under 30 days in length. Although short-term apartment rentals have been illegal in New York since 2010, Airbnb has continued to operate in a grey zone because enforcement has proven to be difficult. The new law was intended to curtail use of Airbnb and similar apartment sharing websites by issuing fines when short-term rentals were advertised.

Airbnb responded to the new law by filing a lawsuit and arguing that the language of the new law was unclear about who the fines would target, Airbnb or the platform’s hosts who rent out their apartments.   In addition, Airbnb argued that the new law violated the Federal Communications Decency Act of 1996, which protects internet publishers of third party content from liability.

Airbnb dropped the lawsuit after settlement discussions with the NY Attorney General’s office clarified that the new law would seek to issue fines against apartment dwelling hosts and not companies like Airbnb who only publish rental postings.  Although the lawsuit was settled, enforcement of the new law is still is still an open question.  Currently, in large cities such as NYC, the mayor’s office is tasked with enforcement of the law locally, but due to limited resources it remains to be seen whether the new law, which fines apartment hosts, will have a significant impact on governmental regulation of short-term rentals.

However, most residential leases and many cooperative proprietary leases and condominium by-laws already prohibit short-term rentals and these documents also often prohibit illegal activity.  As a result, the October 2016 amendment of the short-term rental law has created a new category of illegal activity “advertising short-term rentals,” which landlords and boards can use as a basis to commence legal action to help eliminate short-term rentals even if NY State and local government agencies do not actively enforce the new law.

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