United States: Sherman Discusses “Back-Billing” And Shareholder Obligations In Cooperator Q&A
Last Updated: August 6 2018

Eric Sherman, a partner in Pryor Cashman's Condominiums + Cooperatives and Real Estate Litigation practices, was featured in a recent Q&A with The Cooperator discussing shareholder rights and obligations when a management company attempts to "back-bill" for miscalculated maintenance payments. Associate Marion Harris also contributed to the Q&A, excerpts of which are published below.

Q: I live in a cooperative. One of my fellow shareholders received a notice at the beginning of January from our management company saying her monthly carrying charge would be increased beginning the next month.

Toward the end of January, management advised her that her maintenance (as well as the maintenance of some other shareholders) had been miscalculated for many years and aside from the corrected (higher) monthly charge, they would all have to pay the back difference as well.

Can management back-bill for the difference for so long a period of time?

A: As a first step towards answering any questions that arise out of ownership of a cooperative apartment, consult the governing documents – particularly the proprietary lease and the bylaws – which may have additional rules or requirements unique to the apartment corporation. In short, if there has indeed been a miscalculation in a shareholder's (or all shareholders') maintenance charges, then there likely is no getting out of it—the funds necessary to operate the apartment corporation will be owed, and failure to pay can result in judgments and/or liens against the shareholder's shares and proprietary lease.

That said, how and why there was an error in that calculation deserves examination. If the managing agent is not responsive, this issue can and should be raised with the board, particularly since the error may affect multiple (or even all) shareholders. If there was indeed a miscalculation in the maintenance charges, the difference will end up being paid one way or the other.

Whatever you do, do not ignore notices from your apartment corporation regarding delinquent maintenance charges or assessments. Delinquent maintenance charges or assessments may be referred to the corporation's attorney for collection and, as noted above, could result in a lien placed against your shares and proprietary lease, which in turn could trigger a default under your mortgage (or more precisely, share loan). It is therefore imperative to proactively address any issues, actual or perceived, regarding your monthly maintenance-charge obligations to avoid any of these issues and to ensure that the apartment corporation is operating with the funds it requires to maintain the operation of the building.

The full Q&A can be read here.

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