Joseph G. Colbert is a partner in the law firm of Kagan Lubic Lepper Lewis Gold & Colbert.
When we were children, our parents made and enforced the rules of the house. When it comes to cooperative living, your board of directors is no different than your parents. They make the rules and can force you to follow them. If you do not like living according to someone else’s rules, then maybe cooperative living is not for you.
Cooperative boards are empowered to make house rules that govern shareholders’ lives and to decide when – and when not – to enforce those rules. They cover a wide variety of issues that generally deal with quality of life in the building. Typical ones include prohibitions against dishwashers, washing machines, dryers, food deliveries after 8 P.M., pets, and noise. Some house rules can greatly affect the quality of your life. Board members who did not have dishwashers because the house rules forbid them have admitted over the years that the only reason they became board members was so that they could change the rule and stop washing dishes by hand.
When your building was first converted to cooperative ownership, the sponsor’s lawyer probably stuck a set of boilerplate house rules to the proprietary lease. Those rules may have not even been applicable to your cooperative. For example, one cooperative has a rule about the use of terraces even though there has never been a terrace in the building. If the sponsor’s attorney personally crafted the rules instead of using boilerplate, those were probably favorable to the sponsor in his goal of selling apartments. As time went by and more and more people bought from the sponsor, the resident board members had different needs than the selling sponsor and probably changed the house rules. Interestingly, I have come across cooperatives today that have never changed the boilerplate rules. Others change them several times a year.
It is extremely easy for a board to alter the house rules. Typically, only a majority of board members at a meeting with a quorum present is needed to change them. With a seven-member board, four would have to attend to satisfy the quorum requirement, and then three out of the four can vote to change a house rule. The rules can be amended again at the next meeting if the members change their minds or a different mix votes against the rule that was passed. Does it happen that way? Probably not, but it is certainly possible.
As long as boards stick to quality-of-life issues in the rules, they usually stay out of legal trouble. Every now and then, however, a cooperative board tries to sneak in a requirement that doesn’t belong there. The most notorious is one concerning fines. For example, “If you violate the rules, you will be fined $500 for each violation.” If the proprietary lease contains a provision authorizing such a fine, the board is authorized to adopt a house rule doing that. The trouble is that boards sometimes adopt one when they are not authorized to do so. The usual reason that boards do this is that they cannot, or do not want to try to, obtain a supermajority of shareholders to vote for an amendment to the proprietary lease.
The rule of thumb is that boards cannot impose financial obligations on shareholders in house rules. If they want to do so, the financial obligation must be in the lease. That principle is not clear all the time. For example, a rule becoming more prevalent is one requiring shareholders to carry insurance. But this would not be appropriate because it imposes a financial obligation on shareholders (they have to pay for the coverage), and it thus should be a proprietary-lease amendment.
Do You Want to Know a Secret?
Now for one of the best kept secrets about house rules. As a shareholder, you have to follow them, but as a board you do not have to enforce them. Most proprietary leases contain a provision that the cooperative corporation is not responsible for a shareholder’s violation of the rules. Thus, cooperative boards can exercise their business judgment and decide not to enforce a rule.
For instance, if your upstairs neighbor has a noisy child who runs back and forth all day long, that clearly violates the prohibition dealing with noise in apartments. Your neighbor likes the look of hardwood floors and has no floor covering in the main living areas, a clear violation of the cooperative’s “80 percent floor covering” requirement. You complain to the board and the board decides to stay out of the neighborly dispute. The cooperative may have a warranty of habitability problem, but it still cannot be charged with failing to enforce the house rules.
I like this one even better: cooperative boards can apply their house rules prospectively as well as retroactively. In 1954, a shareholder in a Fifth Avenue building was allowed to erect a 30-foot awning over his terrace. Although allowed in 1954, awnings were prohibited by a 2006 house rule. The co-op also had a restriction against the use of air-conditioning units, unless they were through-the-wall installations. When the owners of the apartment above the terrace with the awning wanted to install a through-the-wall unit, the cooperative board decided to require the shareholder with the awning to remove it to accommodate the installation of the air conditioner. The Appellate Division, First Department, deferred to the board’s business judgment and did not disturb the retroactive application of the new house rule on awnings.
“Irrespective of whether it was permissible at the time it was installed, the cooperative’s house rules presently prohibit the awning, and the cooperative’s right to require its removal is preserved by the non-waiver provision in the proprietary lease,” said the court.
The quality of life in a cooperative building can be changed in a heartbeat by a board vote on house rules. Frankly, I am surprised that many cooperative boards do not appreciate the power that they have. I am even more surprised by shareholders who do not question board candidates on what they envision changing in the house rules in the event they are elected.
Armed with an understanding that a majority of board members can alter your quality of life for better or worse simply by changing the rules, you might consider questioning the candidates at the next annual meeting as to whether they foresee making any changes. Cooperative boards really hold a tremendous amount of influence over their shareholders’ lives. Your boards can make, change, and/or decide whether to enforce them. Now that’s power.