§ 3608. — Judicial determinations respecting unconscionable leases.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC3608]
TITLE 15--COMMERCE AND TRADE
CHAPTER 62--CONDOMINIUM AND COOPERATIVE CONVERSION PROTECTION AND ABUSE
RELIEF
Sec. 3608. Judicial determinations respecting unconscionable
leases
(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 \1\ is frivolous, malicious, or lacking in
substantial merit.
---------------------------------------------------------------------------
\1\ So in original. Probably should be ``plaintiff''.
---------------------------------------------------------------------------
(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.
(Pub. L. 96-399, title VI, Sec. 609, Oct. 8, 1980, 94 Stat. 1677.)
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.
Section Referred to in Other Sections
This section is referred to in sections 3609, 3610, 3611, 3613 of
this title.
