It is worth reminding Cooperatives of some basic pitfalls that may easily sink your summary or eviction proceeding against members. Whether your Cooperative has initiated an eviction for non-payment of monthly carrying charges or fees, or is terminating membership based on material non-compliance, a common question arises: What does the Cooperative do with that member’s monthly carrying or occupancy charges?
The quick answer is DO NOT ACCEPT
monthly carrying charges from a member who is the subject or party to an eviction proceeding. Best practices dictate that once a Notice to Quit or Demand for Possession has been issued to the member for nonpayment of carrying charges, to terminate membership or recover possession of the co-op unit, that monthly carrying charges due by that member should NOT
be accepted. Why is this?
Several courts, including the Michigan’s Court of Appeals in Park Forest of Blackman v. Smith
, 112 Mich. App. 421, have held that a landlord’s (or here, a Cooperative’s) acceptance of rent (or carrying charges) for days prior to the final date on the notice constitutes a termination or waiver of that notice to terminate. See also Hoefler v Erickson
, 331 Ill. App. 577; 73 N.E.2d 448 (1947); Bernstein v Weinstein
, 220 Ill. App. 292 (1920), Major v Hall
, 251 So 2d 444 (La. App. 1971); Jones v Webb
, 320 Mass. 702; 71 N.E.2d 216 (1947).
In Michigan, this rule is called the Park Forest Rule. The reasoning behind this rule is that by accepting rent or carrying charges after a notice to terminate has issued, it leads the tenant or member to believe that further legal proceedings based on that prior notice are not forthcoming due to acceptance of rent or carrying charges. This applies whether the notice is based on non-payment of monetary obligations or due to a breach of other duties in an occupancy agreement or bylaw provisions. The action of acceptance is viewed by the courts as a revocation of the notice by the landlord or cooperative.
If the Cooperative accepts carrying charges for obligations prior to issuance of a Notice, the member/defendant may raise the Park Forest Rule as an affirmative defense to the lawsuit, which in most cases will result in the dismissal of the case and the Cooperative will have to start over – re-issue the notice to quit/demand for possession, and re-file the lawsuit. Unless the Notice is strictly for non-payment of carrying charges and the member tenders the full amount due and owing, the Cooperative should NOT accept the payment.
There are some exceptions, however. For instance, if a termination case is suspected to last over a month, the parties may agree to a Direct Payment Order
from the Court. These are typically called Escrow Orders
. An Escrow Order is an order by the Court that typically requires the defendant to pay their monthly carrying charges to the court during the pendency of the action. The Court holds onto those funds in escrow and releases those funds at the end of the case. Successful cooperative attorneys will seek to recover those amounts after the case has concluded to cover those past carrying charges.
By: Matthew T. Nicols
Attorney at Pentiuk, Couvreur & Kobiljak, P.C.
* Matthew T. Nicols is an associate attorney at the Pentiuk, Couvreur & Kobiljak, P.C., with offices in Wyandotte, Michigan and Chicago, Illinois. Mr. Nicols focuses his practice primarily in areas of cooperative housing law, and other community and condominium association law. He is licensed to practice law in the states of Michigan and Illinois.