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Habitat Magazine Business of Management 2021

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ARCHIVE ARTICLE

Alterations Not Altercations

You are new to your co-op and have just been elected to the board. You want to do some minor renovations on your apartment – put some molding down here, do a little painting there – but you first, dutifully, try wading through pages and pages of your building’s alteration agreement to see what’s covered. It seems like you’re okay, according to one clause, but another says you’re not. Or does it? The legalese flies fast and furiously, and, before you know it, you’re as confused as a voter listening to a flip-flopping politician.

Alteration agreements are essential documents, helping boards straddle the often tricky roles involved. For when it comes to apartment alterations, a board must be both a guardian and an enabler: a guardian of the co-op’s security and safety, yet one that enables its shareholders to realize the full potential of their homes, through refurbishment and renovation.

Nonetheless, alteration agreements are unnecessarily daunting. Ask Caren Browning: When she was elected three years ago as board president at the 26-unit Adelaide co-op at 420-422 West 47th Street in Manhattan, confusion over the property’s alteration policy reigned.

“There were a lot of policies out there,” she says. “There was a lack of consistency – if not in fact, at least in the lore of the building. There was confusion about the process of [doing an] alteration.”

The hands-on, five-member board – which Browning notes has in the past been accused of micromanaging – began to review and revise the rules, a process that took about two years. “We needed to help the shareholders understand,” Browning notes, adding: “We have a fascinating, diverse group of people; a lot of them are capable of doing little projects themselves. We just had to know things were done to code.”

As a result, one director, David Liddell, took a crack at researching and rewriting the policy, while another, the then-treasurer Suzanne Plossl, came up with a concept to help make the process easier for any shareholder who was considering performing work in his or her apartment: an easy-to-follow checklist, a sort of Apartment Modifications for Dummies that ranked alterations and indicated what action would be necessary and whether you needed to apply the alteration agreement at all. Others have tried prioritizing charts before, of course, usually appending a quick-review list of what approvals are required – with its agreements, for instance, Andrea Bunis Management offers a checklist divided into three levels – but few have attempted a chart like the one at 420-422. Broken down into five categories (ranging from “No Risk to the Co-op” to “Major Modification”) and covering every conceivable action a resident could undertake (floor refurbishing, painting, plumbing, combining apartments), the chart acts as a Rod Serling to the twilight zone of alterations. What makes the chart so helpful is that, at a glance, a reader can see what action, if any, is needed. No more wading through pages and pages of legalese.

Click here to see the alteration chart

Experts are split on the merits of such a chart. Attorney Stuart Saft, a partner at Dewey & LeBoeuf, thinks it is a “fabulous idea,” which could help make the alteration process easier. Attorney Bruce Cholst, a partner at Rosen & Livingston, is equally enthusiastic, saying that, if used correctly, the chart could be a big help.

Two others lawyers disagree, however, warning that such a chart has hidden dangers. C. Jaye Berger, an attorney in private practice, says that situations differ from building to building and that most proposed alterations should be double-checked with a lawyer. Ed Braverman, senior partner at Braverman & Associates, is even more forceful, arguing that any time an outside contactor is brought into the building to perform work – whether it is for something as simple as painting a wall or as complex as rewiring an electrical grid – boards need to have a certificate of insurance.

All four attorneys agree with this last point, as does Irwin Cohen, principal at A. Michael Tyler Realty, the manager at 420-422. “The policy and chart fit the needs of this particular building,” observes Cohen. “You can’t just take this chart and apply it to your situation. You have to take the idea and develop it yourself. Every building is different. You have to develop a policy that addresses your issues.” (The chart does carry a warning that “every major modification is subject to a review by an engineer, architect, and/or other licensed professional” and that contractors must provide indemnification agreements.)

“The guiding principal of the board was to improve communications and [provide] consistency for all the shareholders,” explains Browning. “We think this chart does that.”

 

The Must-Have Policy

The alterations chart is a way to communicate policy. But before you create an easy reference tool, you need to create the policy to which it is referring. What are the key issues you should consider when drafting or revising an alteration policy? And how can you communicate them effectively to your shareholders?

For structural, safety, and liability questions, co-ops and condos should require residents performing major renovation or repair work to sign an agreement that spells out their responsibilities and establishes standards that each owner must meet in order to receive approvals.

To some extent, what goes into that policy is defined by how a board sees its role and the image of the building. “Each building has its own temperament,” says Dan Futterman, president of a 42-unit Queens cooperative who feels that alteration agreements should be derived from a board’s overall policy – is it closely controlling or laissez-faire? What kind of scrutiny does it feel it should have? Here are the issues:

Danger: Potential Liability. Until about ten years ago, Futterman’s co-op had an ad hoc arrangement for approvals, not a formal policy. “We’d do it on a case-by-case basis,” recalls the board president. “Then we got some feedback from our new manager that our approach could have a negative impact. We then realized that we needed to have some [standardized] controls. We wanted to make sure that what the tenants wanted to do on their apartment didn’t affect the building as a whole.”

Such an attitude is crucial, warns attorney Braverman, who adds wryly: “Don’t be a nice guy.” He cites a 100-year-old, wood-joist-construction building in Brooklyn in which a shareholder proposed doing a renovation. The co-op’s engineer requested a structural analysis of whether the wall was supporting the joist before he gave approval. The shareholder’s architect said he didn’t have time to prepare one but that he would be present when they took down the walls. “It was like, ‘Trust me, I’ll oversee see it,’” says Braverman. When the wall was removed, the architect wasn’t present, and there were problems. A lawsuit developed – all because the board had overridden the engineer’s request.

Sales Assistance. In addition to the possibility of potential damages and lawsuits, having the right kind of agreement in place is an important element in encouraging future sales. A person may be purchasing a unit because of the potential he or she sees: adding skylights to brighten up a dark space, for instance, or tearing down a wall to open up the space. In such cases, involved restrictions placed on his or her ability to do work may end up quashing the sale. (Of course, legally, boards must adhere to a “reasonableness standard”; in most offering plans, the co-op agrees that it will not unreasonably withhold consent to an alteration. But reasonableness may depend on the eye of the interpreter.)

Protect Your Residents. You need a policy for other reasons, as well. A property with one elevator may need to severely limit the hours of construction work and the number of units allowed to do alterations at one time (that may not be an issue for a building with five elevators, however). In another example, a self-managed building may not have the resources to closely supervise every alteration.

Avoid Future Shock. Besides offering legal protections, an alteration policy is good for psychological reasons. Having the process spelled out creates an awareness among residents of what they must do. If someone decides to punch a hole for a window through a brick wall or redirects a four-inch water line, he will hesitate before he proceeds. If he doesn’t, the policy will have warned him of the consequences – and the board will be on stronger ground should there be a lawsuit.

Change Is Good. When drafting your alteration agreement, however, always remember: change can be good; don’t create a policy that discourages it. Berger remembers a penthouse apartment-owner who was undertaking a large renovation. He was doing a gut renovation but had the misfortune of altering his apartment two years after the owner of the other penthouse unit had renovated his.

“The board had such a bad experience with the first penthouse job that they gave my client a very hard time,” she recalls. “They wanted an enormous security deposit – $250,000 in cash. Then there was a part of the renovation that required hauling things up the side of the building; they gave them only a few days to do that. And they only allowed us to communicate with them in writing. The biggest thing was that it took a year to negotiate the agreement. There was a lot of back and forth. The board was being too difficult. It’s not wrong that the boards take precautions. It made for a very difficult process. Someone wanting to do a renovation should not be faced with a big adversarial thing. While boards and buildings have interests that should be protected, it should be fairly amicable. There’s actually nothing inherently adversarial about wanting to renovate.”

 

 

 

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Alterations: The Essentials

Look at the particular needs of your property. There are essentials and there are extras, both determined by how you see your building. Among the essentials:

 

INSURANCE. The alteration agreement should require that each contractor delivers certificates of insurance naming all the affected parties as additional entities covered. According to attorney Ed Braverman, the certificates should be delivered before the work begins and reviewed by the co-op’s attorney. The board should also require copies of written notifications (containing the indemnification) to neighboring tenants. Insurance must include work.

 

ARCHITECT’S DRAWINGS. Each application for a major structural alteration should include an architect’s drawings and specifications. Then, an independent architect or engineer – paid for by the owner requesting the changes – should review them. The engineer is usually able to tell from the design proposal whether the alterations will affect three basic concerns the building must have.

“The building should have an architect whom they have a relationship with,” attorney C. Jaye Berger says. “Not all buildings do. Buildings that don’t do structural alterations that often should consider that they need to have such a person and have that relationship in place when something comes up. He should be familiar with your building and can therefore review any plans quickly and thoroughly.”

 

SCHEDULING. The alteration policy should address questions of scheduling. For major work, such as wall removal, the policy can require that the owner’s architect/engineer provide a schedule of when the work is to be completed with as many specific details as possible: type of work to be performed, amount of time for each element, construction work, painting, and length of time for the overall project. There is also a question of timing. Some properties, for instance, only permit major construction during the summer months when many owners are away. Others allow construction year-round. Many limit daily work to the weekday hours of 10 A.M. to 4 P.M. Few allow construction at night.

 

MONITORING. The board should require that the managing agent and/or superintendent periodically monitor the progress of the work to see that everything is going smoothly. Along with monitoring, the alteration agreement should probably allow the board to stop the job at any time and correct anything that fails to follow previously approved specifications.

A major alteration can take from three to six months, and, within that period, you need to have inspections so the superintendent can check that the work is being handled correctly. Experts suggest that the architect/engineer also review the work periodically at the owner’s expense to watch for deviations and to ensure that nothing dangerous is being done to the building systems. Remember: there are certain items that the owner should never touch, such as major gas lines and the air conditioner system.

 

SETTING LIMITS. Without agreeing to a timetable in advance, boards can face difficulties. Work can expand beyond the original plans and/or take longer than planned. The owners may be spending a great deal of money to upgrade their apartments and what frequently happens is that the alterations take more time than originally projected and are not being performed in accordance with specifications. It is probably wise for boards to impose time limits, always geared to the extent of the renovation; minor repairs and gut renovations have widely differing time frames.

 

IMPOSING FEES AND FINES. Fees are expected for some reviews: the owner doing the work should probably pay for the architect/engineer review and, possibly, for extra work by the managing agent. Fines are another matter. Work that takes a long time disrupts the building and the neighbors. Fines, tied to each day that the owner works beyond the fixed date, are one way of keeping the work on track. Experts say this is an effective way to get an owner’s attention. But be reasonable: don’t start your figures at $1,000 a day. If you make them harsh, they may not be enforceable in court.

“If the amount is so outrageous that it is not consonant with the extra costs a delay would incur, then it’s going to be stricken,” Braverman notes. “I have a building that was charging $2,000 a day, but it was outrageous – it paid $140,000 in charges. You can’t just pick a number out of the air – they must be tied to reality: you have to have extra lobby men, and so on. Charging $200, $300 a day may be more reasonable.”

 

SIGNING OFF. To be on safe ground, any alteration policy for major structural work should require that the owner obtain municipal sign-offs at the conclusion of the work and, if applicable, an amended certificate of occupancy. The building code requires filings for changes in walls, exposure of the internal structural frame, and nearly everything else except painting or hanging new kitchen cabinets.

 

 

 

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Extras! Extras!

Boards can also include any one of these “optional extras” in their alteration policy:

REVIEWING DECORATIVE CHANGES. Some professionals argue that even aesthetic or decorative changes should be reviewed. A fire may start because a worker was smoking around paint or floor varnish, or else they varnish the floor and then leave the windows shut and the pilot light on, which can lead to an explosion. Attorney Ed Braverman suggests a basic decoration agreement for jobs such as painting.

 

INCLUDING GREEN REQUIREMENTS. Relatively new, green requirements are not widespread (indeed: a recent Habitat survey of 239 co-op.condos find that only one building had implemented requirements to go green when altering). But some are hoping to change that. “We’re currently developing a plan that would incentivize people to go green,” says Lewis Kwit, principal of Energy Investment Systems, who is working with a large Manhattan co-op to develop green policies, including an alteration agreement. But he calls it “a work in progress” and could not reveal the details.

 

ADDING MORE INSURANCE. Many attorneys suggest having an escrow deposit as additional insurance. These deposits can be paid to the co-op and held until the work is finished and approved. If there is damage, that means the building has an immediate source of relief. This is typically about ten percent of the contracted cost of the job. Some buildings go as high as $50,000 for the deposit, the criteria being that it should be a large enough amount to protect the building from any accident.

 

SIGNING ASSUMPTION AGREEMENTS. You may consider preparing an “assumption agreement.” This defines who is responsible for altered equipment. Typically, for example, a co-op pays for the care and upkeep of the pipes within the walls. But if the owner changes those pipes, he is responsible for their care. When he sells the unit, that care is transferred to the new owner (this can be done as a separate assumption agreement, which has to be accepted by the buyer at closing, or else can be indicated by a change in the proprietary lease, which then means the new owner does not have to agree; it is done automatically).

If the assumption is not spelled out – which is what the assumption agreement is for – there can be confusion and litigation over who pays for subsequent repairs down the line. “I don’t know any managing agent who makes the buyer assume the obligations in the alteration agreement,” says Braverman. “So, what happens is I replace the windows in my apartment and they’re poor. I sell my apartment, and the new owner later complains to the co-op about the windows, which the co-op is traditionally responsible for; but since the agent never got the new shareholder to assume the obligations of the old one, the board is stuck with the cost of replacing them. Why should it be saddled with that?”

By the same token, a board should also keep detailed records of what has been done in each apartment. If a question arises years down the line, such records will prove invaluable.

 

NOTIFYING THE NEIGHBORS. Usually, the manager can notify the residents of changes. But you may want your alteration policy to require that the applicant notify the neighbors who will be disturbed by the construction about the nature and length of time of the work. According to Braverman, such a notification should be in writing and stipulate that anyone affected by the work be covered by insurance and indemnified for any damages.

 

REVIEWING THE POLICY. After you’ve crafted a policy that fits the needs, requirements, and image of your property, don’t let it gather dust. It should probably be reviewed and updated every few years to be certain that it is in line with current laws and also to incorporate lessons learned from the building’s previous history with alterations.

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