Passing Legal Fees To Rule-Breakers Can Be An Effective Sanction

Herrick partner, Bruce Cholst, was quoted in the November 2022 Habitat Magazine in the "Legal Talk" Issue. Bruce discusses that having a provision in a proprietary lease or condo bylaws that authorizes the recovery of legal fees from shareholders or unit-owners allows one to use this economic sanction to get recalcitrant residents to comply with the rules, but it comes with risks.

What happens when a shareholder or a unit-owner calls your bluff and says, "Bring it on?" Bruce says, "Then you really have a dilemma. Either you pursue the litigation, carry through on your threat, and seek legal fees in conjunction with that litigation, or you cave. And if you back down, then you are going to lose credibility with that recalcitrant resident who is going to consider your board to be a paper tiger."

Bruce notes that, "it's a very difficult task to actually get legal fees because the courts and the state Legislature here in New York have a real hostility toward allowing  one party to recover its own legal fees. The attitude is each party should bear its own legal costs." He continues, "In 90% of the proprietary leases I’ve  seen, the standard provision says you can only recover attorney’s fees in connection with a default of the proprietary lease. So it has to be properly drafted in order to work outside of this scenario."

He goes on to remind readers that, "Once in court, the most important thing of all is that you are the prevailing party in your litigation in order to recover any legal fees. Know the merits of your case very, very well, and make sure that you can reasonably expect to win on what you’re seeking so that you can be the prevailing party."

The full piece can be found in the November 2022 Habitat Magazine. A PDF version can be found here, with this article on page 47. Access may require a subscription.

Watch below or click here for the video conversation between Bruce an Paula Chin, editor and reporter at Habitat Magazine.