Condo owner's bankruptcy does not protect its tenant.

Louise Albert as tenant entered into a lease with Joseph Summer to rent his condominium unit at the Foxwood Square condominium I in Staten Island, New York. Under the lease, Albert was to pay a monthly rent of $750. She paid her monthly rent from August 1991, when she took occupancy of the unit, to May 1992. The June 1992 rent was returned to her by Summer, who told her that she was no longer required to pay rent because he was filing for bankruptcy protection.

About one year later, the Condominium's attorney requested that Albert pay her rent directly to the Condominium's board of managers instead of her landlord Summer by virtue of the provisions of General Business Law Section 352-e(2-d). This provision requires that if common charges due from an non-occupying unit owner has not been paid in full, the Condominium board of managers may require that all rental payments due to the unit owner be made by the tenant directly to the Condominium Association. The tenant refused to pay the rent to the Condominium board of managers claiming since Summer filed for bankruptcy, his common charges could not be collected and, therefore, her rent could not be collected either.

The court analyzed the legislative history of GBL Section 352e(2-d) and stated that this provision was adopted to address the failure of non-occupying owners (such as Summer) to pay common charges to a Condominium thereby placing the condominium in jeopardy. The law in directing payments of rent by a tenant to the Condominium would at least partially alleviate the financial distress of the Condominium association.

However, the court also concluded that the legislation adopting Section 352-e(2-d) was made in 1991 and was prospective in nature. This statute only related to offering plans which became effective after the statute was adopted. Therefore, this law was not applicable to this lawsuit since Foxwood Square Condominium I was organized long before the law was adopted. While the court held that the Condominium Association could not collect the rent ($750/month, it then considered whether the Condominium Association could collect the common charges ($2/month).

Albert admitted that she received gas, electricity, heat, hot water and cold water without having to pay for these services. Additionally, she had her sidewalk shoveled when it snowed and the lawn cut to the sides of her unit. She received all of the benefits that other condominium unit owners received from the Condominium Association.

The Condominium Association claimed that it is entitled to recover from Albert, since Albert is being unjustly enriched from by the current arrangement. In support of its position, the Condominium Association cited Seagate Association v. Fleicher, 211 N.Y.S.2d 767, which held that a home owner within the Seagate community in Brooklyn must pay the maintenance fees required by the Seagate Association even though she did not become a member of that association. The reason is that one who acquires a home in that private community implicitly accepts the offer from the associates to provide services for which the homeowner would be liable for his or her proportionate share.

The court held that Albert, as the tenant of the condominium unit must pay the common charges ($245.67/month) to the Condominium since she is a third-party beneficiary who is receiving services rendered to her by the Condominium Association. Albert in benefiting from services provided to her must bear the costs involved in paying for those services. A reasonable charge for her use and occupancy of the unit is at least the same amount as the common charges allocated to that unit.

In this case, the condominium unit owner Summer had completely walked away from this property. It appears that Summer took the benefit of bankruptcy and left his condominium unit to be foreclosed by the bank. He also appears to have given his tenant a "gift" until she could be evicted by a court order. However, this court found that this was not a gift which the unit owner had a right to give. The bankrupt trait owner neglected to collect the rent or to assign the rent for the benefit of the Condominium, one of his creditors. This may constitute a fraud perpetrated by Summer upon his creditors including the Condominium Association. The court stated that it will not add to the injustice by allowing the tenant Albert to receive benefits from the Condominium without ever paying for them.

Therefore, the court ordered that Louise Albert pay use and occupancy for the unit in the same amount as the common charges attributable to that unit ($245.67/month). for the entire period of time that common charges were not paid.

Thus, the filing for bankruptcy protection by a condominium unit owner does not absolve his tenant from the responsibility to pay common charges to the Condominium for as long as the tenant occupies the unit. Foxwood Square Condominium I v. Albert, N.Y., Law Journal May 15, 1996, page 28, col. 6.

Edward L. Schiff is senior partner of the New York City law firm of Schiff, Turek, Kirschenbaum, O'Connell, LLP, which specializes in real estate matters.