For board members and property managers of co-ops and condos in New York City, there are legal and financial questions regarding new and old laws, accounting rules, auditing, and so much more. Here’s what you need to know to manage your finances and speak knowledgeably with your accountant and attorney.
Written by David Baron on August 13, 2015
Our broker said we have to submit an alteration agreement to renovate the apartment we want to buy. Why the paperwork? It's obviously a wreck.
Buyers of new, newly renovated, or original apartments have all been bitten by the renovation bug. Renovations are at an all-time high throughout our nearly 25,000-unit portfolio. At Metro Management, we confront this almost daily. The broker was correct to inform the buyers that they will probably have to fill out an alteration agreement and gain board approval. Most co-op leases and many condo governing documents require board approval for renovations. Many owners feel that since they bought their apartments they should be able to renovate at will and often don't understand why they can't just call in a contractor. Although many renovations improve the overall value of the property, when done incorrectly these can have a negative impact on unit-owners and the building.
The alteration agreement sets forth the policy and procedure under which renovations are permitted from the smallest to largest detail. This protects the apartment owner and the building against pitfalls that can accompany renovations. For instance, is the contractor adequately insured? How long will the renovation take? When will the noise stop?
The alteration agreement also stipulates the hours and days work is permitted, and also the penalties for noncompliance with stipulated rules.
One main component of the alteration agreement is a written scope of work. When all information is available, we can present the renovation package to the board, which can then make an informed decision in the best interests of all owners. This results in a faster, more efficient renovation with the least amount of disruption.
David Baron is president of Metro Management Development.
Written by Gary Ziprin on August 13, 2015
Why would a building have a financial statement that is not audited? Should we be concerned?
An annual financial statement reports on your building's financial condition and cash flow. This report is relied on by shareholders or unit-owners, by prospective purchasers, and by lending institutions. Almost all co-op and condo bylaws require an inspection of books of accounts in the form of an annual report. Most require that the annual report be audited and issued by an independent certified public accountant. When the bylaws do not call for the auditor to "certify," the co-op or condo board has the option to have its accountant issue a report that simply compiles or reviews the property's books and records.
It is in the building's best interests to have an independent accounting firm prepare an audited financial statement so that the independent CPA can report that, in his or her opinion, there are no misstatements in the audited report, and that the information is presented fairly and accurately. The CPA cannot make that representation if the report is merely a compilation or review. A certified audit gives the building the greatest level of credibility for both new buyers and lenders, and qualifies the building to receive the most favorable financing options from banks and creditors.
Gary Ziprin is CFO of Midboro Management.
Written by Michael Mintz on August 12, 2015
My broker told me that there hasn't been a board election in several years. Is something amiss?
Discovering that a co-op has not held board elections in several years is certainly something that warrants investigation. As elections take place at annual meetings, the more significant "red flag" issue would be the absence of such meetings, which generally require a quorum.
Ideally, because a co-op apartment is a significant investment, shareholders would be interested in ensuring a quorum and serving on the board. In many cases, however, if the building is functioning well, and shareholders are pleased with the board in place or with the candidates presented, a board can be voted in by acclamation. That is still considered an election. If the annual meeting lacks a quorum, no election can take place and the sitting board remains. This in and of itself does not necessarily indicate any problems.
However, if there has been no election because of the absence of an annual meeting, there is cause for concern. It is more than likely a violation of the building's bylaws and New York Business Corporation Law and should be remedied.
Michael Mintz is CEO of MD2 Property Group.
Written by Frank Lovece on August 12, 2015
With surprisingly little fanfare and virtually no notice, a New York City regulation goes into effect early September that requires childproofing the electrical outlets in common areas. Failure to do so will result in violations and fines.
Signed on May 6 and going into effect 120 days later, Local Law 39/2015 requires that co-op and condo boards and rental-building owners install "protective caps, covers, or other safety devices over electrical outlets" in all public areas except those "used exclusively for mechanical equipment or storage purposes." You needn't do anything at all if your cooperative or condominium already has tamper-resistant outlets, which have been required in new and renovated buildings for years under statutes based on the 2008 National Electrical Code.
When we last checked in on the Hudson Yards skyscraper project, which involves building a 47-story condo and hotel tower, things were pretty tense between Chinese private equity firm Kuafu and its partners, Blackhouse Development and Siras Development. Back in March, Kuafu was hoping a judge would force its local partners to turn over their stakes in the project. Five months later, reports the New York Daily News, it looks like Kuafu is "making moves to force the foreclosure of [the] site." According to the Daily News, the Chinese real estate giant, via an affiliate, acquired "a $44.4 million loan granted to the project by banking giant UBS and is now filing to foreclose on itself and its partners, citing a loan maturity default." What's this mean? Well, if it's successful, "Kuafu could force a public auction of the property and then potentially submit its own bid to purchase it for a second time — without its current partners, Blackhouse Development and Siras Development." Of course, points out the Daily News, it would have to outbid any potential competitors. It's like a brilliant game of chess. We'll be watching to see what the next move is. It's not checkmate just yet.
Written by Bram G. Fierstein on August 11, 2015
The lack of detail or sparseness of minutes could be a sign of either deficient governance, poor secretarial skills, and/or an intentional attempt to obscure or not disclose something.
Notwithstanding the foregoing, the sparseness of minutes may simply be based on the recommendation of the board’s managing agent or legal advice of its corporate counsel following the axiom that “less is more,” since the critical issue is the quality not the quantity of content. Accordingly, minutes containing the date of meeting, attendees, issues, or discussion topics, approved or tabled, are sufficient regardless of detail.
Bram G. Fierstein is president of Gramatan Management.
August 11, 2015
Speaking of subletting a co-op apartment, check out this one couple's quandary. The pair want to sublet the place for a year while they are out of the country. The problem is that the building allows pets, including service animals, and the husband has severe allergies to animals. Should someone with a pet rent the apartment, it would mean having to professionally clean all the furnishings, "including Oriental rugs." They ask Ronda Kaysen in this week's Ask Real Estate column in The New York Times what restrictions, if any, they may put on animals. Kaysen replies, "Just because your building is pet-friendly does not mean you have to be. Simply advertise your sublet as a 'no-pet' rental and screen prospective subtenants carefully. Include a provision in the sublease that clearly explains the rule and your reasoning." Of course, if a potential subtenant requests permission to bring along a service animal "as a reasonable accommodation for a disability," then the husband's disability — severe allergies — would factor into a court's decision. "If accommodating a pet would aggravate your husband's disability," explains Kaysen, "it is unlikely that a court would consider a request for a service animal as a reasonable accommodation."
Written by Joseph L. Bavaro on August 10, 2015
Annual maintenance increases are an extremely important strategy to keep up with cost-of-living increases, which we face every year. Since overall operating expenses never seem to decrease, annual maintenance increases allow us to be proactive in planning to cover these expenses.
One of the co-ops we manage, 21 Fort Washington Avenue, a Housing & Development Finance Corporation building, implements a minimum 2 percent increase every year to maintain financial stability. Thus, even if our projected budget does not call for an increase, it is important to stay consistent and maintain the increase.
Also, it is much easier to communicate a 2-percent increase per year than a 15 to 20 percent increase every 10 years or when the co-op is in financial distress. Shareholders understand the need for these increases and it allows the building's accounts to maintain a positive cash flow throughout the year.
Joseph L. Bavaro is senior vice president and director of property management at Finger Management.
Written by Ira Meister on August 10, 2015
The co-op we are interested in doesn't allow pets. My dog is a "comfort dog," so how do I handle this?
My advice is to be straight with the board. When you submit your purchase application, be sure and tell them about the dog. In your board submission, include proper documentation for the dog confirming that he is a true comfort animal (in some cases we have seen such certification). Additionally, you should submit proper documentation for yourself, or whoever is residing with you, asserting that the dog is needed. The board cannot discriminate against an applicant who legitimately needs a comfort animal and has proper documentation. Not being upfront can lead to an unnecessary legal challenge, which can be very expensive for all parties.
Ira Meister is president of Matthew Adam Properties.
Residents of Cobble Hill are giving a resounding thumbs down to the high-rise condo towers that Fortis Property Group has proposed to build in the former Long Island College Hospital site. Locals believe the towers "would cause a drastic surge in population density and traffic congestion in the quaint neighborhood," reported DNAinfo. One of the proposals includes one tower that would be "at least" 40 stories high built between Pacific Street and Atlantic Avenue, along with 19-, 14- and 11-story buildings. The other proposal, which would require rezoning, "would put a 40-story residential building at Hicks Street and Atlantic Avenue closer to the Brooklyn Queens Expressway with 30- and 20-story buildings at the LICH site." Locals say both proposals are "out-of-scale" and that the tallest structures are at least twice as high as they think they should be. They are also "particularly anxious over the influx of new residents that the development would bring." They should also be concerned about that "at least 40 stories" — residents of the Lower East Side got a nasty surprise after a proposed tower they already thought was too tall at 56 stories got the okay to rise to up to three times higher than the Manhattan Bridge.
Thinking of buying a co-op or condo? Already bought, and not sure how co-op/condo life and rules work? Learn all about purchasing a place and living in your new community. It's not like renting, and its not like owning a house. What's it like?