Collecting Money From Co-ops and Condos in New York

Real estate is big business in New York. You don’t need to own property to make money either. As a supplier or service provider, selling to co-ops and condos can be very lucrative. Just like the real estate business, debt collection in New York is also nuanced and has its challenges, especially when collecting money from co-ops and condos.

According to the New York City Department of Finance, there are 4,310 co-ops and 3,078 condos in New York City with a total of 347,515 units. Although some of the co-ops and condos are self-managed, meaning the owners manage the buildings, many are managed by a managing agent.

The co-op or condo’s board of directors will hire a managing agent and task them with the job of carrying out the business of operating the building. There are some very well-known managing agents in New York that manage large portfolios of buildings. If a business that services co-ops and condos in New York establishes a good working relationship with a managing agent, there is a strong likelihood that the managing agent would use the vendor on some, if not most, of the buildings they manage.

Doing Business With a Co-op or Condo

For those selling or servicing the buildings, which can be many businesses, a vendor’s good relationship with a good managing agent can and often has a multiplier effect. But, as with business relationships, there are times when nonpayment becomes an issue.

Although the vendor looks to the managing agent for payment, it is the co-op or condo’s responsibility to pay. The managing agent is not responsible for the goods or services provided to the building. The responsibility falls on the principal, who requested the goods and services or received the benefit of them.

For purposes of this article, we will assume that the managing agent acted within the scope of the authorization provided by the board of directors and therefore would not have liability to the vendor for payment.

Although the vendor has a good relationship with the managing agent, if the building refuses to pay for some or all of the goods or services, the managing agent can not make the payment. Only the co-op or condo’s board of directors can authorize the payment.

If not paid, the vendor would need to press for payment from the co-op or condo directly. There are times when there is a refusal to pay which may be due to limited financial resources. When dealing with agents who work with less solvent buildings, chances are you may end up with more unpaid invoices.

Debt Collection Challenges

One of the challenges in collecting unpaid balances is whether it is cost effect to file a mechanic’s lien against the property assuming you have a right to lien the property.

Another challenge in collecting money from co-ops and condos is that each building is a separate legal entity, often an LLC. If you have more than one, or many, buildings that fail to pay, resulting from the relationship with a single managing agent, you will have many different customers or debtors.

The challenge becomes when part of an invoice from several buildings remains unpaid and the balances owed either on their own or together become a large receivable.

Such is the case with many of our clients that are subcontractors or service providers. They render services to the buildings by way of the managing agents, and identify the receivables in their systems under the agent’s portfolio and building address.

For those, we must identify the correct corporate name of the buildings readily available in NYC’s ACRIS database and send a demand to the board of directors or managing agent at the cooperative or condominium. We are sometimes able to enlist the aid of the managing agent to reach the right person, but the responsibility for payment as stated above remains with the budding.

Sometimes we are successful in obtaining payment by way of demand. If not,the client will need to make an economic decision. Is it worth expanding costs to collect the balance owed?

Our client that provides materials to buildings and had a portfolio of buildings that didn’t pay is a perfect example. Nonpayment does not result from the client’s fault or non-delivery, but a dispute with the managing agent and the buildings or associated entities that look to take advantage of a supplier like our client.

We are generally able to group the unpaid accounts into one action by naming the managing agent as a “connector” in the lawsuit. The connection being that the managing agent engaged our client on behalf of the individual LLC buildings. Even with that, there is a cost charged by the process server to serve each of the individual buildings. Therefore, the client may or may not choose to pursue all of the buildings.

If demand fails, and client needs to pursue payment from all of the buildings that fail to pay, it may not make economic sense for the client to expand the costs to serve all of the buildings that failed to pay. It is a decision that we try to help our clients with.

Every industry has its nuances when it comes to debt collection. Such is definitely the case when attempting to collect unpaid monies from condos and co-ops in New York.

For help with a debt collection matter involving co-ops or condo, contact Frank, Frank, Goldstein and Nager.