You’re part of the board in a new condo. You’ve heard board service can be tough. You don’t know the half of it. Be afraid. Be very, very afraid. And then follow this simple but crucial commandment: thou shalt organize right now. “It’s so critical for new condo owners to get organized quickly,” says Kathleen Schmidt, 54, the treasurer of the board at The Lenox, a new red brick and limestone condominium rising 12 majestic stories above the intersection of Lenox Avenue and 129th Street in Manhattan.
Schmidt speaks from experience. She has lived in various co-ops and condos for two decades and has served on boards for 15 of those years. “In a new condo,” she explains, “you have a one-year warranty with the contractor to present your grievances. A lot of people don’t even realize they’ve got that one-year window to get satisfaction.”
If you want to get satisfaction from your newly bought, newly constructed condominium, what steps should you take? There is no guidebook for running a condo – and many unit-owners fly by the seat of their pants, often right into a newly constructed brick wall. How can you avoid – or at least minimize – the challenges of taking charge?
A new condominium’s bylaws and offering plan will spell out when the first annual meeting is to be held, and how long – or whether – the sponsor will retain control of the board. Most condos begin life under a board that’s controlled by the sponsor. C. Jaye Berger, an attorney with 30 years of experience in co-op.condo law, notes that most condo boards don’t feel truly “liberated” until they wrest majority control from the sponsor. But liberation can be elusive. “You don’t know how quickly units will be sold,” Berger says. “In years past, sponsors tended to linger forever. Now, there’s been case law that makes sponsors more proactive in selling their units and giving up control.”
Indeed: even though the vagaries of the marketplace can make it difficult to predict when the sponsor will actually sell off apartments and surrender control, as a new condo owner, your first step once you buy a condo is to get organized.
That was a concern of Kathleen Schmidt’s when she moved into The Lenox in January 2007. Schmidt, a consultant in financial services, and her husband, Thomas, a church musician, had been living near Lincoln Center and looking for a home with a large terrace in a less congested neighborhood. The Lenox suited them perfectly, not so much because they preferred condo ownership over co-op membership but because they were able to buy a three-bedroom, 1,900-square-foot apartment with a 725-square-foot terrace for $1.4 million. While such a price tag is not exactly chump change and would have been eye-popping in Harlem just a few years ago, it’s far less than such a spacious, well-appointed apartment would fetch today in, say, their old neighborhood on the Upper West Side.
The Lenox was “built to impress and appointed to caress,” in the words of its promotional website. It’s the first unsubsidized, fully market-rate luxury condominium north of 125th Street. Among the first buyers in the 77-unit building, the Schmidts realized that they only had a one-year warranty on the unit. So, Kathleen began organizing almost as soon as she and her husband moved in.
Schmidt took the first step new condo owners should always take: she got to know her neighbors. Marc Luxemburg, a partner at Snow Becker Kraus and an attorney who works frequently with residents of new condos, believes the very first order of business in any new building should be this simple act. “Ring doorbells and say hello,” Luxemburg advises. “You’re buying into an unknown situation and you need to meet your neighbors, get acquainted, find out who’s capable of serving on a board.”
Getting familiar with the neighbors may be the most important thing new condo dwellers can do when they’re getting ready to vote on their first board of directors, agrees Chris Wilson, who has been on the board of the 17-story, 35-unit building New Theater Condominium since it opened in Manhattan’s East Village four years ago. Residents interested in serving on the board pooled “resumes” listing their qualifications.
“If I could have done it differently, I might have cast a wider net and gotten even more input, tried to encourage more people to get involved,” adds Wilson, an investment counselor who is now the New Theater board president. “If you do that, it will help you avoid the inevitable specter that the board is some secret agency.”
There is strength in unity. Every resident at The Lenox, for instance, was invited to a series of open meetings, which resulted in the formation of an informal group of 11 committed residents. On September 17, at The Lenox’s first official annual meeting, a board of directors was elected. Just two of the seven seats went to the sponsor, as spelled out in the offering plan, which meant the residents enjoyed majority control from Day One. It’s a desirable arrangement for residents – and one that some condo owners and co-op shareholders spend years waiting for.
Sandra Greer, the president of Sandra Greer Real Estate and manager of half-a-dozen new condos in Manhattan, says establishing trust among new residents is also a crucial precursor to forming a board. “A lot of people moving into new condos have had bad experiences and they think badly of the sponsor even before they move in,” Greer says. “It’s up to the managing agent to build up trust and make new buyers feel they have something they can rely on.” To this end, she distributes a “Welcome Package” to new arrivals that explains how to contact the manager, the rules on altering apartments, the super’s duties, and other important information.
After the Takeover
Evaluate your professionals. After a board assumes majority control from a sponsor, the first challenge is to evaluate the professionals currently working for the property. Sponsors hired them, and boards often want to fire them. But Theresa Racht, a partner at Racht & Taffae and another attorney who specializes in co-op.condo law, says that boards should carefully evaluate these people – managers, accountants, attorneys, and supers – before rushing them to the exit door.
“Boards need to determine where the professionals’ allegiances lie – and also determine if they’re competent,” she says. “For example, a lot of management companies are more experienced with rental properties than with condos, which are two completely different ball games.”
Berger agrees, saying there is often an urge to change attorneys, accountants, and managers, especially in smaller buildings. “It’s a little bit hard to guide them,” she says of these heady early days of independence. “I try to get them to recruit people for the board who’ve had some experience running a corporation” – such as lawyers, businessmen, and people with knowledge of construction, accounting, and taxes.
Jerry Rosengarten, the sponsor at New Theater Condominium, still lives there, even though he gave up board control two years ago. When residents gained the majority, Wilson joined with board members who wanted to fire the super but dissuaded them from sacking the manager. “I was able to show, in the minutes of our meetings, that the manager was unbiased and tough,” he says. “I convinced the board that firing him would be a mistake. I also kept up good relations with the sponsor. That’s better than locking horns with him.”
Educate yourself. Once a board is in place, Luxemburg recommends that board members steep themselves in the building’s bylaws and attend informational seminars, which are regularly run by the Council of New York Cooperatives and Condominiums (CNYC) and other organizations. Berger agrees. She also urges her clients to educate themselves about the nuts-and-bolts of running a board:how to vote, record the minutes of meetings, and find a fitting management company, attorney, and accountant.
Survey for problems. You should also send out a survey to all residents to determine the nature and extent of construction problems in each apartment. Shoddy workmanship and unfinished work is becoming a citywide plague. In some cases, developers simply cut corners in a rush to feed the seemingly insatiable appetite for apartments; in other cases, developers are blatantly lining their pockets. Either way, a board needs to be aware that there’s a limited amount of time to fix things under warranty.
By getting organized early, the board at The Lenox made the right move on this score. “One thing a new board will have to do is survey the residents and determine if problems are isolated or if they’re the result of major systemic failures: leaky roofs and faulty heating and air conditioning systems,” says Racht. “If there are problems, the board is going to have to take action against the sponsor sooner rather than later.”
Hire an engineer. One of a new board’s first missions will be to explore hiring an engineer to make a thorough assessment of the building before the construction warranty deadline. Then the board should find the right accountant and lawyer. Stuart Saft, a partner at Dewey & LeBoeuf and another veteran co-op.condo attorney, leads a CNYC seminar called “Basic Responsibilities of Condominium Boards.” It covers everything from bylaws to budgets, annual meetings to alterations, house rules to elections. “What we tell new boards is, ‘Don’t change everything the first day,’” Saft says. “‘Don’t think that all the contracts should be cancelled the first day. Hire an engineer – not a lawyer. Have him go over the whole building to make sure it’s up to specs.’”
Walk through common areas.
Inspect the common areas. Even before they were officially on the board, two future members of The Lenox tenants’ group – a contractor and an expert on mechanical systems – did a walk-through of the building’s common areas. There were complaints about some of the Brazilian-cherry hardwood floors, and there were concerns that an elevator rather than a ramp serviced the parking garage. Was there a back-up motor in case the elevator broke down? “We’ve all heard horror stories about new construction,” Schmidt says of the rationale behind the tour. “While we had some issues, they were not in the horror-story category.”
Scrutinize the offering plan.
You should also do a reality check on the offering plan. Schmidt went over hers with a fine-toothed comb to see if there were any discrepancies between what buyers were supposed to get and what they actually received. Schmidt was not thrilled to learn that the offering plan had been modified after she and her husband closed – and, furthermore, that the intercom promised for each apartment in the original had been replaced by a “telephone panel” at the front desk. And that was not yet in place. The sponsor was alerted to the board’s findings.
Open a dialogue with the sponsor. Many new condo owners often turn to the law as the court of first resort. They file a complaint with the attorney general, which can be a fruitless formality because of the office’s abysmal enforcement record. The other method is to take the sponsor to court. This can be costly and time-consuming.
The least contentious and cumbersome way to approach your new lives in a condominium, however, is to do what residents at The Lenox did: open a dialogue with the sponsor and work toward getting satisfactory repairs completed. Schmidt, whose past board service has made her leery of sponsors, says she was pleasantly surprised by her dealings with The Lenox’s, an entity called Uptown Partners. She says that this is because the sponsor is holding onto a dozen rental apartments and thus has a vested interest in seeing that work is done thoroughly and competently. Also, Uptown is building another high-visibility, 28-story Harlem condo, Fifth on the Park, at the corner of Fifth Avenue and 120th Street. That building, like The Lenox, is being built by the Artimus Construction. For a sponsor with big plans for the neighborhood, a reputation for buyer satisfaction simply makes good business sense. Unfortunately, that is not always the case.
Racht advises condo boards that knowing how to do battle is less important than knowing how to do business. “Basically, I try to focus less on fighting the sponsor than on getting policies in place – for alterations, admissions, a relationship with management, contracts for exterminators and storage, things like that,” Racht says. “A policy on alterations is especially important because even in a brand-new building, there’s always someone who’s going to want to gut their apartment and redo it.”
Sometimes, the “unknown” aspect of a new condominium building turns out to be a curse, and other times it turns out to be a blessing. Since the building is new, residents expect things to be perfect, which is virtually never the case; on the other hand, the unfamiliarity of the surroundings and the people can act as a curiously efficient icebreaker. “Because [The Lenox] is brand new,” says Schmidt, “people talk to each other and introduce themselves. In a lot of established buildings, you barely speak to your neighbors.”
To their delight, the Schmidts have discovered that their neighbors are a highly diverse group. “This building is probably the most diverse community I’ve ever lived in,” she says. “It’s a wonderful mix – of races, professions, young couples with kids, couples like us with grown kids. And being part of the changes taking place in Harlem is exciting.”