Q: I live in a Housing Development Fund Corporation, or HDFC, co-op in New York City. Recently, an original shareholder added her adult daughter as a shareholder, and the daughter is a chronic nonpayer. The board doesn’t think she can afford the apartment, and would like the chance to financially vet her. After the daughter moved in, the original shareholder moved to a different HDFC co-op, but the shares were never transferred. Can we require that the shareholder certificate be revised to reflect the daughter’s sole ownership? And can the board financially vet her as a sole shareholder?
A: If the daughter has already been added to the lease, then the board cannot go back and vet her after the fact, unless there was some conditional agreement when she was added. What’s done is done.
Peter Massa, a partner at Fox Rothschild in New York who works with condominium and co-op boards, suggested checking the co-op’s governing documents, regulatory agreements and records for this unit. Was the daughter actually added to the lease? Look to see if there are transfer fees, and read the assignment provisions to see what the board’s review rights are.
If the daughter was never added to the lease, then she may be there illegally. It’s possible that shareholders in your building have a right to transfer their shares to a family member without board consent, but the board can likely prevent any transfer until the maintenance is paid.
Like other co-ops, the board in a Housing Development Fund Corporation co-op has a duty to manage the co-op’s finances in the interest of all shareholders. (There are more than 1,100 HDFC co-ops in New York City, and they have income and resale restrictions.) Almost all HDFC co-ops require owner occupancy, so the original shareholder could be in violation of this rule. But, generally, it’s not in the co-op’s interest to enforce this, since the daughter is a shareholder.
“You want to be able to have her on the hook,” said Darryl M. Vernon, a partner at Vernon & Ginsburg in New York. “She might be able to get her daughter to pay.”
If the daughter isn’t paying the maintenance, you can take action against her — either a nonpayment case or a chronic nonpayment case, depending on how many times she’s failed to pay. In a nonpayment case, the daughter can pay and stay in the apartment, but a chronic nonpayment case could lead to an eviction.
“It’s rare, but it can happen if it’s extreme,” Mr. Vernon said.
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