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Title 15, Commerce and TradeRelease 119-110

§3608 Judicial Determinations Respecting Uncon­scionable Leases

Title 15 › CHAPTER 62 — CONDOMINIUM AND COOPERATIVE CONVERSION PROTECTION AND ABUSE RELIEF › § 3608

Last updated Sep 23, 2026|Official source

Summary

Unit owners can ask a court to rule that certain leases written by a developer were unfair when signed. The owners’ association can bring the case only for leases that (1) are tied to a cooperative or condominium project, (2) were made while the developer ran the owners’ association (either by special control or by holding a voting majority), (3) had to be accepted as a condition of buying a unit, (4) last more than 21 years or renew automatically for more than 21 years, (5) have automatic rent increases, and (6) were signed before June 4, 1975. The owners must approve the lawsuit by a vote of at least two-thirds of the owners who are not the developer or the developer’s affiliate. Before suing, those same owners must vote (two-thirds) to try to negotiate changes with the leaseholder and must wait up to 90 days for a deal before filing suit. If the lease also (a) lets a lender foreclose for missed payments, (b) makes owners or the association take on almost all maintenance and liability, (c) raises rent automatically without a stated maximum, or (d) requires annual rent greater than 25 percent of the appraised value, the court will start with a presumption that the lease is unfair unless the leaseholder proves otherwise. Parties can present evidence about how the deal was made, whether one side was taken advantage of, the lease’s purpose and links to other contracts, and how the rent compares to similar property. The court can cancel or change the lease, order repayment or damages, and award reasonable attorney fees and costs. A defendant can get attorney fees if the court finds the plaintiff’s case was frivolous, malicious, or without substantial merit. Owners cannot sue after developer control ends if they later agreed to buy the leases or to reform an automatic rent increase clause, unless that agreement was made while the leaseholder or an affiliate still held a voting majority. Definitions: "annual rental" = amount due in the first 12 months for all units, whether occupied or sold; "appraised value" = the value placed on the property for the first tax year after sale of a unit or share to someone who is not a developer affiliate.

Full Legal Text

Title 15, §3608

Commerce and Trade, Source: USLM XML via OLRC

(a)Lease characteristics; authorization by unit owners; conditions precedent to action
Cooperative and condominium unit owners through the unit owners’ association may bring an action seeking a judicial determination that a lease or leases, or portions thereof, were unconscionable at the time they were made. An action may be brought under this section if each such lease has all of the following characteristics:
(1)it was made in connection with a cooperative or condominium project;
(2)it was entered into while the cooperative or condominium owners’ association was controlled by the developer either through special developer control or because the developer held a majority of the votes in the owners’ association;
(3)it had to be accepted or ratified by purchasers or through the unit owners’ association as a condition of purchase of a unit in the cooperative or condominium project;
(4)it is for a period of more than twenty-one years or is for a period of less than twenty-one years but contains automatic renewal provisions for a period of more than twenty-one years;
(5)it contains an automatic rent increase clause; and
(6)it was entered into prior to June 4, 1975.
Such action must be authorized by the cooperative or condominium unit owners through a vote of not less than two-thirds of the owners of the units other than units owned by the developer or an affiliate of the developer, and may be brought by the cooperative or condominium unit owners through the units owners’ association. Prior to instituting such action, the cooperative or condominium unit owners must, through a vote of not less than two-thirds of the owners of the units other than units owned by the developer or an affiliate of the developer, agree to enter into negotiation with the lessor and must seek through such negotiation to eliminate or modify any lease terms that are alleged to be unconscionable; if an agreement is not reached in ninety days from the date on which the authorizing vote was taken, the unit owners may authorize an action after following the procedure specified in the preceding sentence.
(b)Presumption of unconscionability; rebuttal
A rebuttal presumption of unconscionability exists if it is established that, in addition to the characteristics set forth in subsection (a) of this section, the lease—
(1)creates a lien subjecting any unit to foreclosure for failure to make payments;
(2)contains provisions requiring either the cooperative or condominium unit owners or the cooperative or condominium association as lessees to assume all or substantially all obligations and liabilities associated with the maintenance, management and use of the leased property, in addition to the obligation to make lease payments;
(3)contains an automatic rent increase clause without establishing a specific maximum lease payment; and
(4)requires an annual rental which exceeds 25 per centum of the appraised value of the leased property as improved: Provided, That, for purposes of this paragraph “annual rental” means the amount due during the first twelve months of the lease for all units, regardless of whether such units were occupied or sold during that period, and “appraised value” means the appraised value placed upon the leased property the first tax year after the sale of a unit in the condominium or after the sale of a membership or share interest in the cooperative association to a party who is not an affiliate of the developer.
Once the rebuttable presumption is established, the court, in making its finding, shall consider the lease or portion of the lease to be unconscionable unless proven otherwise by the preponderance of the evidence to the contrary.
(c)Presentation of evidence after finding of uncon­scionability
Whenever it is claimed, or appears to the court, that a lease or any portion thereof is, or may have been, unconscionable at the time it was made, the parties shall be afforded a reasonable opportunity to present evidence at least as to–
(1)the commercial setting of the negotiations;
(2)whether a party has knowingly taken advantage of the inability of the other party reasonably to protect his interests;
(3)the effect and purpose of the lease or portion of the lease or portion thereof, including its relationship to other contracts between the association, the unit owners and the developer or an affiliate of the developer; and
(4)the disparity between the amount charged under the lease and the value of the real estate subject to the lease measured by the price at which similar real estate was readily obtainable in similar transactions.
(d)Remedial relief; matters considered; attorneys’ fees
Upon finding that any lease, or portion thereof, is unconscionable, the court shall exercise its authority to grant remedial relief as necessary to avoid an unconscionable result, taking into consideration the economic value of the lease. Such relief may include, but shall not be limited to rescission, reformation, restitution, the award of damages and reasonable attorney fees and court costs. A defendant may recover reasonable attorneys’ fees if the court determines that the cause of action filed by the plantiff is frivolous, malicious, or lacking in substantial merit.
(e)Actions allowed after termination of special developer control
Nothing in this section may be construed to authorize the bringing of an action by cooperative and condominium unit owners’ association, seeking a judicial determination that a lease or leases, or portions thereof, are unconscionable, where such unit owners or a unit owners’ association representing them has, after the termination of special developer control, reached an agreement with a holder of such lease or leases which either—
(1)sets forth the terms and conditions under which such lease or leases is or shall be purchased by such unit owners or associations; or
(2)reforms any clause in the lease which contained an automatic rent increase clause, unless such agreement was entered into when the leaseholder or his affiliate held a majority of the votes in the owners’ association.

Legislative History

Notes & Related Subsidiaries

Statutory Notes and Related Subsidiaries

Effective Date

Section effective one year after Oct. 8, 1980, see section 618 of Pub. L. 96–399, set out as a note under section 3601 of this title.

Reference

Citations & Metadata

Citation

15 U.S.C. § 3608

Title 15, Commerce and Trade

Last Updated

Sep 23, 2026

Release point: 119-110