How the “Tenant Protection Act” Affects Co-ops and Condos: Limits on Late Fees; Recovery of Expenses in Evictions; Timetables to Cure Defaults; Ban on Escrows for Maintenance; Limits on Application Fees Charged by Managing Agents

The newly passed “Housing Stability and Tenant Protection Act of 2019” (the “ TP Act ”) makes sweeping changes expanding tenant rights in rental apartment buildings. However, since Co-op corporations also have a landlord-tenant relationship with their shareholders, many of these changes will significantly affect enforcement of the Cooperative’s rights as well.

1. TP Act Limits on Late Fees; Reduced Recovery of Expenses of Eviction; Longer Time Periods for Evictions.

The TP Act included several provisions focused on rental apartments which will have significant impacts on cooperative corporations:

Late Charges . The TP Act imposed limits on the late fees that can be charged in a lease: the lesser of $50.00 or 5% of rent. Co-ops that charge higher late fees now need to be aware that they can be challenged. Ironically the TP Act does not limit late fees charged by Condominiums or HOA’s.

We recommend that all Co-ops start charging interest at the highest permissible rate under the Proprietary Lease (currently 16% per year unless the lease has a lower rate) from the first date that rent is overdue. Interest may not be considered a “payment, fee or charge” for purposes of rent collections.

No “Additional Rent” Collectable in Summary Proceedings . The TP Act defines “rent” as “the monthly…amount charged…in consideration for the use or occupation of a dwelling…” It specifically excludes any other “fees, charges or penalties” from rent.

Most proprietary leases define maintenance charges (the cost of building operations) as “rent,” and any other amounts due to the Co-op as “additional rent.” Since the TP Act applies to Co-op leases, the result is that a Co-op can no longer include late charges or fines in the total amount sought in summary non-payment proceedings. The Co-op must now start a separate proceeding, such as a collection action in Civil Court. Typical collection actions have significantly higher filing fees and longer wait times for hearings and decisions. It is also questionable whether legal fees can be claimed in a collection action, unless they are allowed under a different section of the Proprietary Lease.

Are legal fees still collectable as part of a summary non-payment proceeding, or are they too now considered a “fee, charge or penalty”? We would argue that they are still collectable in a summary proceeding, since RPL Section 234 specifically states that if a lease allows collection of legal fees in an action or summary proceeding by the landlord, it also impliedly allows collection of legal fees by the tenant. But that issue must still be determined. Moreover, the law also now states that legal fees are not collectable if the landlord obtains a default judgment.

What about discretionary parking or cable charges, gym fees and other charges, i.e., charges that tenants only pay if they use the facility, and that may be itemized separately in a normal maintenance bill? In theory they are not “consideration” for rental of the dwelling, but separate amenities. Therefore a tenant could argue that they too are not recoverable in a summary proceeding.

We recommend that any Co-ops who itemize any building-wide charges separately change that policy, and now include them in a single charge as part of maintenance. It may also be possible that the Co-op’s lien against the shares for any moneys that it is owed – including those that are not collectable in a summary proceeding – allows them to be collected upon resale of the apartment (possibly together with interest.)

Extended Time Periods to Cure Defaults . Most notice and cure periods in summary proceedings have been materially extended, which will further delay collection of arrears. Tenants also now have thirty days to cure defaults even after a determination against them in a summary proceeding (previously it was ten (10) days.)

2. Ban on Escrows for Maintenance Charges?

The TP Act prohibits landlords from demanding more than one month’s rent as a security deposit. Co-ops sometimes require escrows of maintenance charges as a condition of approving purchasers. Prior cases have held that maintenance escrows are security deposits rather than “additional rent.” Therefore, the TP Act would appear to bar cooperatives from continuing the practice of requiring maintenance escrows.

3. Limits on Application Fees Charged by Managing Agents

Yet another section of the TP Act limits the leasing application fees that a landlord can charge to $20.00 . Most managing agents charge purchase application fees ranging up to $750.00. Could the restriction on leasing application fees in the Act be interpreted to apply to purchase application fees, since a purchaser is simultaneously applying for permission to lease the apartment via the Proprietary Lease? Many commentators are taking that position. Although you might think that the restriction does not apply to a managing agent (since the fee goes to the agent, not the Co-op), remember that the managing agent is still the “agent” of the Cooperative, so the fee could well be imputed to the Co-op, as the Agent’s principal.

If these interpretations are upheld, then managing agents will lose a major source of income which they counted on when they quoted a management fee to their clients. They will look to recoup that income through different charges.
Initially, we recommend that the description of the fee should be changed in both the management agreement and purchase application to specify that it is being imposed in connection with the purchase of the shares of the Corporation , not the lease of the Apartment. Longer term, both the Co-op and the Agent should consider other ways to recoup the charges in a manner unrelated to the initial lease of an apartment.

BROADER IMPACTS OF TP ACT ON COOPERATIVES.

Act does not Apply to Condominiums . The TP Act addresses only landlord-tenant relationships. It does not cover condominiums (since the relationship between the Condo and the Unit Owner is not considered a “landlord-tenant” relationship.) Thus one of the significant advantages of cooperatives over condominiums – the ability of cooperatives to maintain summary proceedings to collect arrears in maintenance charges and additional rent due to the Co-op corporation — has largely been eliminated.

Unintended Consequences . We don’t think that the legislature was consciously targeting cooperative corporations when it passed many of the provisions of the TP Act. Notwithstanding, that same ignorance has once again resulted in serious injury to housing cooperatives throughout the state. New York State continues to impose regulations on cooperatives and condominiums without considering their unique characteristics. If you believe that your building will be injured by these new laws, please write to tell your legislator – again – that non-profit Co-op corporations are not the same as for-profit landlords, and that shareholders who comply with their obligations should not have to bear the burdens of protecting the Co-op against shareholders who breach them.

Update on “Prevailing Wage” Bill. The Governor has not yet signed this legislation. If your Association will be affected by having to substantially raise the pay of building service employees who perform work in connection with the maintenance of the building (which includes security guards, possibly even those engaged by a guard service), we urge you to make your opinions known to the Governor immediately. You can contact the Governor’s office by writing to: The Honorable Andrew M. Cuomo, Governor of New York State, State Capitol Building, Albany, NY 12224.

Legislative Update: “Prevailing Wages” Required to Receive Co-op/Condo Tax Abatements; Mandatory Garage Inspections

Most of our attention has been focused on the effects of the newly passed “Housing Stability and Tenant Protection Act of 2019” (the “ TP Act ”) on rental apartment buildings. However, several other recently enacted state and local laws also affect cooperatives and condominiums in New York City and the surrounding counties.

1. “Prevailing Wage” Pay Required to Receive Co-op/Condo Tax Abatements.

Beginning July 1, 2020, cooperatives and condominiums receiving the benefit of the “co-op/condo tax abatement” in NYC will be required to “ qualify ” for the abatement. The requirements for “qualification” are either (i) the Property has an average assessed value of $60,000 or less per unit; or (ii) the Property must certify that it is paying all building service employees the “prevailing wage” (as determined by the NYC Comptroller). Currently the “prevailing wage” in NYC for handypersons, cleaners/porters and doorpersons, runs from $24.90 to $27.43 per hour, plus supplemental benefits valued at $12.81 per hour, varying depending on length of employment.

Check your own building’s assessed valuation to see if you may exceed the $60,000/unit threshold. Co-ops and Condos in Manhattan that are not “union” buildings are especially likely to run afoul of this new requirement. Be prepared!

2. Mandatory Inspections of Parking Garages.

All parking garages in New York State now must be inspected every three years by a professional engineer to detect deterioration of any structural element or building component in the garage, or evidence of any “unsafe condition.” A report (called a “condition assessment”) must be filed with the NY Department of State.

A “parking garage” excludes buildings with on-grade parking only, and single-unit or detached garages.

If the building was constructed before 1984, the first inspection is due by October 1, 2019 . If the building was constructed between 1985 and 2002, the first inspection is due by October 1, 2020. Thereafter, the first inspection is due October 1, 2021. The municipality will set the timetable and standards for inspections and reports thereafter, but no less than every three years.

New York City buildings are familiar with these types of inspections because of Local Law 11, which governs façade inspections. The standards for deciding whether repair or remediation is required are also similar, i.e., any recommended repairs must be performed before the next periodic inspection. Buildings outside of NYC will have to find out what standard their community applies by trial and error; in NYC, standards were progressively relaxed until a recent backlash.

Your next garage lease needs to impose more stringent notice and repair obligations on the tenant, or you could be exposed to significantly greater repair obligations as a result of deferred maintenance.

New York State Joins The Trend Prohibiting Salary History Inquiries

Last week the New York State Legislature approved a bill prohibiting employers from soliciting prior salary information from job applicants. Governor Cuomo is expected to sign on. The new law continues a trend in the state as New York City, Albany County, Westchester County and Suffolk County have previously enacted similar laws. The New York State law is most notable for the relief it provides to aggrieved applicants who can recover lost compensation and attorneys’ fees in a civil action and be awarded injunctive relief.

Summer’s Almost Here! Welcome to the Unpaid Intern Conundrum

Summer is approaching and employers are now considering whether to bring on unpaid interns for the season. This article discusses the parameters that employers should follow to properly classify workers as unpaid interns instead of employees entitled to minimum-wage and overtime pay under the Fair Labor Standards Act (“FLSA”) and/or New York Labor Law (“NYLL”). As in other employment law scenarios, a close look at the applicable law is far from satisfying due to conflicts in the federal and state law.

A short review of the development of the pertinent law is needed for context. In 2010 the United States Department of Labor (“U.S. DOL”) issued a test under which six conditions must be met for a worker to be classified as an unpaid intern (“U.S. DOL Six-Part Test”). This rigid test placed a heavy burden on employers to justify an intern’s unpaid status. Consequently, many lawsuits by interns followed seeking the payment of minimum wage and overtime pay. However, several subsequent federal court decisions rejected the U.S. DOL Six-Part Test, the most prominent of which was the Second Circuit’s decision in Glatt v. Fox Searchlight Pictures, 791 F.3d 376 (2d Cir. 2015), amended and superseded by 811 F.3d 528 (2d Cir. 2016).

Together with its rejection of the U.S. DOL Six-Part Test, in Glatt, the Second Circuit announced a seven-part test to be applied, known as the “Primary Beneficiary Test”, comprised of a non-exhaustive set of considerations to be balanced under the circumstances, none of which is dispositive. Those considerations were:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

On January 5, 2018, the U.S. DOL, by that point under the control of the current administration, adopted the more employer friendly Primary Beneficiary Test. With the issuance of the Glatt decision, as adopted by the U.S. DOL, one would think that New York employers would have clarity on the parameters it must follow to comfortably retain unpaid summer interns. But no, there is state law to consider. Although the Second Circuit held that the Primary Beneficiary Test applied to the plaintiffs’ claims under both the FLSA and NYLL, the Court’s holding as to NYLL is not binding on New York courts. While at least one New York Court tacitly recognized the viability of the Second Circuit’s Primary Beneficiary Test,[i] no New York Court has affirmatively signed on to it.

This leaves New York employers only with the guidance issued by the New York Department of Labor (“NY DOL”) in July 2016, after the Glatt decision, that sets forth an eleven-part test comprised of the U.S. DOL Six-Part Test plus five more parts (the “NY DOL Eleven-Part Test”), all of which are mandatory conditions to classify a worker as an unpaid intern. The conditions are:

  1. The training, even though it includes actual operation of the employer’s facilities, is similar to training provided in an educational program.
  2. The training is for the benefit of the intern.
  3. The intern does not displace regular employees and works under close supervision.
  4. The activities of trainees or students do not provide an immediate advantage to the employer. On occasion, operations may actually be impeded.
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period and are free to take jobs elsewhere in the same field.
  6. The trainees or students are notified, in writing, that they will not receive any wages and are not considered employees for minimum wage purposes.
  7. Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity.
  8. The trainees or students do not receive employee benefits.
  9. The training is general, and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program.
  10. The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program.
  11. Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.

Given these conflicts in the law, New York employers are left in a bit of a haze as to how to structure an unpaid intern program. Of course, the safest road would be to pay all retained interns as required by the FLSA and/or NYLL, but many employers cannot afford that. The next safest course would be to follow the NY DOL Eleven-Part Test. However, neither of these options may be appetizing to an employer. In such circumstances, the only other option is to consult counsel on a third, compromise program that is primarily for the benefit of the intern and predominately educational in character.

Stay tuned for our next eblast concerning the laws applicable to volunteers, students and trainees retained by not-for-profit businesses.
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[i] Leuvan-Monroe v. Karla Otto Inc., No. 155697/2015, 2017 WL 65661 (Supreme Court, New York County Jan. 6, 2017)

U.S. Department of Labor Rejects New York Law Regarding Wages Paid To Live-In Superintendents

On March 14, 2019, the U.S. Department of Labor (the “U.S. DOL”) issued an opinion that resolves a conflict between federal law and the New York Department of Labor Building Service Industry Minimum Wage Order (the “NY Wage Order”). Although U.S. DOL opinion letters are not binding law that courts must follow, courts often give great weight to the guidance set forth in them, and employers can rely on such guidance as a good faith defense to a wage claim arising under the Fair Labor Standards Act (the “FLSA”).

The NY Wage Order sets forth the regulations that control the payment of wages to persons employed in the building service industry, and it contains specific provisions that apply to live-in superintendents employed to work in residential buildings (i.e., cooperative, condominium and apartment buildings).

The NY Wage Order does not require the payment of a minimum hourly wage to live-in superintendents. Instead, the minimum wage is a weekly amount based upon the number of units in the building and a per unit rate, which varies depending upon the county in which the building is located. For example, the current weekly rate for Westchester County is $8.00 per-unit. In addition, under the NY Wage Order residential building superintendents are not entitled to overtime pay.

In its opinion the U.S. DOL stated that the minimum wage and overtime requirements set forth in the FLSA supersede the “per unit” minimum wage and overtime exemption contained in the NY Wage Order. Thus, based on the opinion, employers must provide overtime pay to superintendents, and pay the federal minimum wage of $7.25 per hour if the weekly pay at that rate exceeds the weekly pay based upon the per-unit rate required by the NY Wage Order.

The opinion addresses the difficult task of tracking the actual hours worked by live-in superintendents, who are generally “on-call” after business hours to address emergencies and other needed work. The opinion states that an employee who resides on the employer’s premises is not considered as working all the time he/she is there, and that normal private pursuits on the premises, such as eating, sleeping, entertaining and other periods of complete freedom from all duties, are not hours worked.

Finally, the DOL provided guidance as to how to address the difficulty of tracking a superintendent’s on-premises hours by citing to federal regulations, which provide that the employer and employee may establish a “reasonable agreement” that determines which hours on the premises are hours worked.

New Employment Laws Alert

Dear clients and friends, please be aware of the following new laws that are effective this month:

Westchester County Paid Sick Leave Law
Effective March 30, 2019, the Westchester County Earned Sick Leave Law allows employees to accumulate one hour of paid sick time for every 30 hours of work. The law applies to employers with at least five employees and allows workers to accrue up to 40 hours of paid sick time a year. The sick days can be used for employees’ mental or physical illness or to take care of a sick family member.

NYC Mandates Workplace Lactation Rooms
Beginning March 18, 2019, New York City employers with at least four employees must provide lactation rooms and create a written lactation accommodation policy that must be given to employees at hire. Pursuant to the law employers must also provide a clean space for employees to express breast milk, as well as refrigerators in reasonable proximity to work areas for the purpose of storing breast milk.

Tiffany Beats Religious Discrimination Claim

On February 11, 2019, the United States District Court for the Southern District of New York dismissed an employee’s claim for religious discrimination against the world renowned luxury jewelry retailer, Tiffany and Company.

Plaintiff Kristin Rightnour, a former Director of Marketing, alleged that she was disciplined by Tiffany because of the company’s perception that as a practicing Catholic she held the belief that Jewish people killed Jesus and because she acknowledged that many Catholics believe as much. Rightnour further alleged that after she filed a complaint with the EEOC, Tiffany retaliated against her by denying her a promotion and ultimately terminating her.

Tiffany denied that it discriminated against Rightnour and the Hon. John J. Koeltl agreed. Judge Koeltl held that Tiffany’s actions were based on non-discriminatory reasons including Rightnour’s persistent partnering and communication deficiencies, lack of professionalism, inappropriate comments in the workplace, and abrasive and dismissive attitude in meetings. Among other things, Tiffany employees testified that Rightnour made a series of offensive comments at work including that “all Asians love social media” and “Hispanics love blondes,” as well as the labeling of another employee as a “crazy bodybuilder CrossFit chick.”

While it was true that the initial warning that Rightnour received noted her statement to a Jewish employee that Good Friday is when “your people killed Jesus,” Judge Koeltl held that other evidence discredited Rightnour’s claim that she was disciplined because of her Catholic religion. That evidence included the fact that Catholic employees complained about Rightnour’s behavior and investigated allegations against her and that a new Catholic employee was hired to take over some of Rightnour’s responsibilities.

Judge Koeltl held that Rightnour’s retaliation claim was without merit because Tiffany disciplined her before she filed an EEOC complaint, and thus, she did not demonstrate that her protected activity was the “but for” cause for the alleged retaliatory actions as required by Title VII.

Jury Awards $21.5 Million To Dishwasher Who Was Fired For Requesting A Religious Accommodation

On January 14, 2019, a Florida federal court jury found a Hilton affiliated hotel liable for retaliation after it terminated the plaintiff dishwasher for seeking a religious accommodation, and awarded her $21,000,000 in punitive damages, $500,000 for emotional pain and mental anguish, and $36,000 in lost wages and benefits.

In Marie L. Jean Pierre v. Park Hotels & Resort, Inc., the plaintiff (“Pierre”) was hired by the Miami hotel in 2006 to work as a housekeeper. From 2006 to 2008 Pierre worked two Sundays a month. In 2008, Pierre, a devout Catholic, resigned and informed the hotel that she could not work Sundays because of her religious beliefs. In response, the hotel offered Pierre a position as a dishwasher for which she would be permitted to take Sundays off, which Pierre accepted.

In 2014 Pierre’s manager demanded that she work Sundays. In response Pierre wrote two letters to the hotel’s HR department stating that she could work Monday through Saturday, but could not work on Sundays because of her religious beliefs. Despite these letters, the manager continued to schedule Pierre for work on Sundays. The hotel fired Pierre in 2016 after she failed to work on Sundays for which she was scheduled.

The hotel’s primary defenses were that it needed Pierre to work on Sundays in 2015 and 2016 because it was short-staffed, and that it offered Pierre a reasonable accommodation of working before or after she attended church on Sunday.

After a five day trial, the jury found that Pierre’s failure to accommodate claim was without merit, but found that the hotel’s termination of Pierre was in retaliation of her lawful requests for a religious accommodation.

Subway Franchisee Called to Task by EEOC for Sexual Harassment of Job Applicants

On November 29, 2018, the EEOC and Draper Development, LLC, a Subway franchisee operating 24 Subway restaurants in the Albany area, entered into a Consent Decree arising from texts sent by a Schenectady store manager seeking sexual favors from two 17-year-old job applicants.

Among others, the store manager sent a text message to one applicant stating: “Bang my brains out the job is yours” and a text to the other applicant stating: “Do you want to f–ck?” Draper fired the store manager after an investigation of the charges.

In 2015, the EEOC commenced an action in the U.S. District Court for the Northern District of New York alleging unlawful employment practices against Draper. The Consent Decree required Draper to: (1) pay the two job applicants a total of $80,000 in back pay; (2) post a notice to its employees of the lawsuit and settlement; (3) maintain and distribute written policies and procedures prohibiting discrimination including sexual harassment and enabling employees to file discrimination complaints; (4) provide training on federal laws prohibiting discrimination including sexual harassment to all current and future employees; (5) permit the EEOC to monitor Draper’s compliance with the Consent Decree; and (6) provide the EEOC with periodic reports on internal complaints of discrimination.

Consistent with the model sexual harassment prevention policy that the New York Department of Labor issued last year, the policy required by the EEOC provides a higher standard of conduct for supervisors than for other employees who have witnessed sexual harassment. Employee witnesses who are not supervisors are instructed to “please immediately” report the harassment. In contrast, supervisors are “requir[ed]” to promptly report complaints and are subject to “immediate termination” for their failure to do so.