New York's Cooperative and Condominium Community

Habitat Magazine October 2020 free digital issue

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ARCHIVE ARTICLE

Outsiders Getting In

I would like to know whether my co-op board, of which I am a member, should be letting purchasers of our apartments see the board minutes. It just seems to me that this could be an invasion of our privacy especially because they’re not even shareholders.

 

As you probably know, before signing a contract to purchase a co-op or condo apartment, a well-counseled purchaser will undertake certain “due diligence” that is not necessary for a purchaser of a single-family residence. That is because the financial condition of the association itself, and the physical condition of the association’s common areas, will affect the value of the apartment to the purchaser. If funds will be necessary to deal with extraordinary financial or physical problems, then the current level of the maintenance or common charges associated with the apartment to be purchased will probably not be sufficient, or any association reserve fund may be substantially depleted. So, the purchaser must consider all that in deciding whether to purchase the apartment and on what terms.

Some of the information and documents that a purchaser typically would seek are usually in the seller’s possession. Associations typically distribute copies of their financial statements on an annual basis to apartment owners, who also frequently have a copy of the association’s offering plan and amendments, which contain the original proprietary lease for a co-op, declaration for a condo, and bylaws and house rules for a co-op or condo. A seller can make these available to a purchaser performing due diligence, or arrange for the property manager to make copies of these available, usually for a small fee or a deposit ensuring their return.

Many associations do not make it a practice of distributing board meeting minutes to apartment owners. In fact, even if an apartment owner requests a review, associations frequently resist, both because their legal obligation to disclose them (other than as part of a discovery request in a litigation) is debatable, and such review by an existing apartment owner frequently is sought to aid the owner in a dispute with the association, or as a precursor to an election or recall challenge regarding board seats. Therefore, it might seem strange that your board is willing to allow a review by a potential purchaser – who is not even an apartment owner – especially because associations have no contractual or legal obligation to do this.

The explanation is simple economics. Associations want to maximize the values of their apartments. If they will not allow purchasers to review their minutes, then the risks to purchasers are enhanced and their suspicions are piqued. This will either lower sales prices or kill deals altogether. Consequently, boards bite the bullet and allow access, although usually under very controlled circumstances at their property manager’s office with copying not allowed. To balance their privacy concerns somewhat, well-counseled and disciplined boards keep their minutes sparse, with little if any reports of discussions, and only the text of actual resolutions voted upon and the voting results themselves. Boards are wise to do so to fend off challenges by existing apartment owners.

I am a new board member of my co-op. The board is periodically asked to approve the transfer of a shareholder’s stock and lease to a trust. The board usually grants those requests, but I believe that the board should do so only if it limits the occupancy of such trust-owned apartments to immediate family members of the creator of the trust, who is the prior owner. I heard that there is a law that allows roommates even in co-ops, but I don’t think that should prevent the co-op from imposing restrictions on what the trust can do. Am I right?

Typically, co-ops are not required to approve transfers of their stock and leases to trusts. When they do so, they usually impose a variety of conditions. Thus, it is tempting to conclude that, in exchange for granting permission, a co-op could limit the occupancy of trust-owned properties to immediate family members. The co-op could most readily do so in the occupancy agreement under which the trust grants to the grantor the right to continue in occupancy of the apartment after the transfer to the trust.

The questioner is correct that a well-trodden statute, known as the “roommate law” (RPL Section 235-f), governs “unlawful restrictions on occupancy” in leases for all New York apartments. It provides that, “It shall be unlawful for a landlord to restrict occupancy of residential premises by express terms or otherwise, to a tenant or to such tenant and immediate family.” Also, that “a lease or rental agreement” with one tenant “shall be construed” to allow the tenant, his family, and one “additional” (unrelated) occupant, and the occupant’s dependent children; and with two or more tenants possibly additional (unrelated) occupants, and their families.

These restrictions plainly apply to co-op proprietary leases, and probably also to leases for the rental of condo units, although, to my knowledge, not to the occupancy of a condo unit by the owner himself. So there is every reason to believe that these restrictions would apply to the occupancy agreements that co-ops typically require a trust to issue to the grantor in connection with a transfer to a trust.

Moreover, this is not diminished by the fact that a co-op is not required to allow transfers to trusts, and thus seemingly should be able to apply conditions to them. The roommate law provides: “Any provision of a lease or rental agreement purporting to waive a provision of this section is null and void.”

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