Cooperatives Versus Condo Corporations: Liability of Owners

Cooperatives are not generally regulated like Condominium corporations governed by the Condominium Act which spells out the rights of condo owners who own a physical unit in the condominium property.  In contrast, in a Cooperative, the owner does not own a unit but rather a share in the Cooperative corporation, with an exclusive right to possession of a given unit.  The rights and obligations of the owners to each other is generally spelled out in a contract among owners and the Cooperative.  We were recently retained to advise on the rights of an individual owner who had refused at first to pay a disputed plumbing invoice, but later did, under protest.  The Cooperative Corporation, acting through a property manager and its lawyers, purported to lien the owner’s share for 100% of all legal costs incurred by the corporation in seeking the payment for the plumbing invoice, and to enforce that lien by seeking a Court order to sell the owner’s share (and effectively his residential unit).  The plumbing invoice, disputed but paid, was for about $1,700.  The corporation then spent approximately the $40,000 on legal costs (judging by cost summary presented to the Court as the hearing).  Those costs had become the real matter in dispute as the corporation appeared to operate on the basis that however much it spent on legal fees it could just pass them on to the owner by liening his share for the fees and then seeking to enforce the lien through forced sale.  The Court declined to grant the corporation any of the main relief it sought and in fact found that the unit owner had overpaid with respect to one invoice.  The Court did grant a declaration that the unit owner had committed an initial breach, but also declared that he had cured it.  Meanwhile, as a result of the Court decision, the other owners are left to bear the $40,000 in legal costs incurred by the lawyers retained by the property manager. This was a case where hindsight suggests that, if there had been a modest application of common sense by the board, the matter might have been practically resolved at an early stage.