In a recent article that appeared in Habitat Magazine, the Appellate Division of New York, determined that a proprietary lease which provides for the payment of legal fees to a co-op even regardless of the outcome of the lawsuit, is unenforceable. The result may have consequences for all cooperative corporation’s that bill back their shareholders.
The decision will require co-op boards to consider the legal fee provisions in their proprietary leases. When a dispute arises between a shareholder and a cooperative corporation, typically the proprietary lease provides that the shareholder is responsible for the payment of legal fees whether or not the co-op is successful in the action. Typically legal fees are deemed to be reciprocal, meaning that the prevailing party is entitled to recover reasonable legal fees.