When Can I Withhold Paying Monthly Common Charges?

If you own a condominium or your property is part of a homeowners association (HOA), you’re likely obligated to pay monthly or quarterly common charges to the condo board or HOA.

A common question that arises when owners have disputes with the board of directors or property manager is whether they can withhold paying monthly common charges.

The short answer is no. Doing so would likely be a bad idea.

What Does NY Law Say About Withholding Common Charges?

The following is a summary of the current status of the law in New York State when it comes to common charges.

• The obligations of a unit owner to pay common charges and special assessments cannot be avoided (Real Property Law §339-x), and are, for the most part, absolute.

• A unit owner cannot withhold payment of common charges and assessments in derogation of the By-Laws based on defective conditions in his unit or in the common areas, or because of a disagreement with actions lawfully taken by the board of managers.

Based on the state of the law in New York, you should always pay your common charges and special assessments. Failure to do so will likely end up with you as the defendant in an action brought by the board of directors/managers to enforce your obligation per the By-Laws.

When Is It Permissible To Not Pay My Common Charges?

The only circumstances where it could be found permissible to withhold paying common charges (even that is risky and you could ultimately be found in violation of your association’s By-Laws, so it’s better to keep paying but to deposit the money into an escrow account) is if you have tangible, credible evidence of self-dealing or fraud on behalf of the board of directors/managers.

In other words, unless you can 100% prove that the board or property manager is either stealing money or engaging in some very bad behavior, you must pay your common charges. And the reason you need strong evidence is due to what’s called the “business judgment rule.” Here’s what it means:

• Under the business judgment rule, a court’s inquiry is limited to whether the board acted within the scope of its authority under the By-Laws and whether the action was taken in good faith to further a legitimate interest of the condominium.

• Absent a showing of fraud, self-dealing or unconscionability, the court therefore will conduct only this narrow review, and will not inquire as to the wisdom or soundness of the business judgment.

That means that the Court is not going to substitute its judgment for the judgment of decisions made by a board of directors/managers unless you can prove “fraud, self-dealing or unconscionability.”

What Exactly is Fraud, Self-Dealing, and Unconscionability?

And so we’re all on the same page as to how “fraud, self-dealing or unconscionability” are defined, here’s what Black’s Law Dictionary has to say:

Fraud, n. 1. A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment. 2. A misrepresentation made recklessly without belief in its truth to induce another person to act.

Self-dealing, n. Participation in a transaction that benefits oneself instead of another wo is owed a fiduciary duty.

Unconscionability. 1. Extreme unfairness. 2. The principle that a court may refuse to enforce a contract that is unfair or oppressive because of procedural abuses during contract formation or because of overreaching contractual terms, esp. terms that are unreasonably favorable to one party while precluding meaningful choice for the other party.

So as a general rule, it is best to continue paying common charges even if you believe the board of directors/managers has engaged in fraud or self-dealing, and then schedule a consultation with the team at The Donaldson Law Firm, PLLC. Give us a ring or send us a note and we can talk more about your concerns.