For board members and managing agents overseeing New York City’s cooperative and condominium buildings, properly implementing late fees, sublet fees and fines is a critical part of ensuring financial stability, regulatory compliance, and fair treatment of residents. These fees, while routine, often raise legal and operational questions that boards must navigate carefully. For board members and managing agents, clear policies, grounded in governing documents and legal precedent, are the best defense against disputes and ensure the building is managed effectively and equitably. Below is a guide to tips, best practices, legal limitations, and enforcement strategies surrounding these three common categories of charges.

First, some lingo:

“Late fees” are a one-time charge for a payment that is late.  The amount is limited by statute to 8% of the payment that is late and can only be charged if authorized by the proprietary lease or bylaws.

“Interest” is a continuing charge, from the time the payment is due until it is paid, for the lost use of the money for that period.  The amount must be authorized in the proprietary lease or bylaws.  You cannot collect interest on the accumulated unpaid interest unless your documents authorize “compound” interest.

“Fines” are charges for violation of a lease, bylaw or house rule provision.  They must be authorized by your governing documents and cannot be “penal” (that is “too much”) in amount.

Tips for boards and managing agents:

When considering adopting, or applying, late fees, interest, sublet fees or fines, the first step is to check your governing documents – your proprietary lease, bylaws, declaration or house rules.  Fees, interest, and fines must be authorized by and in compliance with the documents.

In addition:

• Keep fee applications transparent and consistent to avoid disputes.
• Review fee policies regularly to ensure they reflect current needs and laws.
• Always be reasonable. When it comes to fines and late fees, courts generally require that the charges be reasonable and not function as penalties that are punitive rather than compensatory. If a fee is out of proportion to any loss sustained by the building, case law has demonstrated that it could be invalidated as a penalty. The key legal principle is that fees should reflect a fair estimate of the actual damages or costs incurred by the delay or breach, rather than serve as a punishment and/or additional revenue stream for the building.
• Calculate the fee correctly. Unfortunately, all too often, the charge, as reflected on the shareholder/unit owner monthly statement, does not properly reflect the charge authorized in the applicable governing document.  Sometimes, interest on arrears gets transmuted into a flat “late fee” (or vice versa).

Late Fees: Enforce With Care

• Purpose: Late fees encourage on-time payments of monthly maintenance (co-ops) or common charges (condos) and help cover costs caused by delayed payments.
• Legal Limits: Most cooperative proprietary leases and condominium bylaws permit the board to charge a late fee or fixed percentage or amount for interest on unpaid maintenance or common charges. Real Property Law Section 238-A allows a cooperative (with the exception of Mitchell-Lamas and HDFCs) to impose “a fee of up to 8% of the monthly maintenance fee for the late payment of the monthly maintenance fee if the proprietary lease or occupancy agreement provides for such fee.” Although the statute authorizes the imposition of an 8% charge, it is authorizing it as a one-time late fee, not interest.
• If the governing documents allow for interest on arrears, the rate must still comply with the maximum legal rate permitted by New York law for an individual, which is 16% annually (approximately 1.33% per month). Charging interest on the prior interest due is called “compound interest” and is likely to be considered usurious and unenforceable by a court unless authorized by the governing documents.
• Best Practices:
  • Do not confuse late fees with interest charges; avoid compound interest and usurious rates. A flat fee is often easier to administer and less likely to be miscalculated.
  • Apply fees consistently and notify owners promptly about late payments.
  • Have a firm collections policy and consider legal action only after repeated non-payment.

Sublet Fees: Balance Control with Fairness

• Co-ops vs. Condos: Co-op boards have more control over subletting and fees, while condo boards have limited authority over rental fees.
• Legal Limits: Sublet and rental fees can be fixed amounts, a percentage of rent, and/or serve as application/processing fees.
• Best Practice:
  • Fees must be reasonable, not punitive.
  • Maintain a clear, written policy covering sublet/rental approval processes, fees, and terms.

Fines

• Best Practices:
  • Provide notice and a cure period where applicable before imposing a monetary fine.
  • A sliding fine scale for a continuous uncured violation may be enforceable only if the ultimate amount is reasonable.
  • Typically, a good benchmark for a fine amount is its relation to the monthly common charge or maintenance paid by the owner. Prorating that amount can often provide a legitimate justification for the fine depending on the severity of the offense and cost to the building or others.

By staying informed and proactive, boards and managing agents can protect their building’s finances while fostering good relationships with the owners. If you have any questions concerning your building’s imposition of lates fees, sublet fees or fines, please call us before implementing any questionable charges.