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Habitat Magazine Business of Management 2021

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ARCHIVE ARTICLE

Double Life

When one of the shareholders at a 300-plus unit co-op in Bayside, Queens, asked to speak to the co-op’s managing agent this past July, there didn’t seem to be anything unusual about the request. The shareholder was “very nice, very professional,” recalls the managing agent, but the conversation was hair-raising: did the managing agent know that a new sublessor in the co-op was listed on the New York State registry of sex offenders? Before the hour was out, the managing agent had checked the registry herself, called her direct supervisor, and had the co-op board president in her office calling the building’s attorney.

It was a nightmare scenario with a happy ending. The board’s attorney contacted the co-op’s sponsor, who in turn spoke with the sublessor, who agreed to move out. A potential crisis of epic proportions was averted. The next question was, what to do in the future?

Again, the co-op board got lucky. While sponsors are under no legal obligation to let boards review applications from potential purchasers or sublessors, in the case of the Bayside co-op, the sponsor agreed to institute criminal background checks on all future tenants immediately, and provide proof to the board that he was doing so. While the cost to the applicant, $125, was hardly minimal and some applicants with squeaky clean records might balk, most everyone agreed that it was worth the hassle, says Errol Brett, the attorney for the co-op. Simply put, who wants a criminal living next door?

It can be a very gray area for boards and for sponsors: what is their liability if a shareholder or a tenant commits a crime in the building? Can the board’s failure to act – i.e. stop someone with a criminal record from moving into a building – be construed as a negligent act if a crime is committed?

“Generally speaking, criminal acts are not a basis of liability [for a board],” says attorney Steve Wagner, a partner in Wagner Davis. “There has to be some finding of additional negligence on the part of the building or the management company.” Meanwhile, “proprietary leases make co-op owners responsible for their acts or negligence on the part of their guests or invitees.” However, should a problem arise from a shareholder or tenant and it comes to light that the board could have foreseen it by implementing a background check, “the failure to check – in certain instances – may be negligent.”

John Auletta, executive director of the background screening division of Summit Security Services, says that for a $100 to $150 fee per application, his company will put an applicant through a multi-tiered process, reviewing credit reports and driving history and performing a search of criminal records, sex offender registries, and Social Security numbers.

Often the information that turns up can be quite salient, even if it isn’t the stuff of TV’s Cops. What’s not there is just as relevant as what is. Says Auletta: “If someone omits an address that they had in North Carolina that could be a clue that this person has a criminal record in North Carolina. You pick that up doing a social security address check.”

There are all kinds of potential red flags in an application that might otherwise appear completely innocuous, agrees Robert Grant, director of Midboro Management. Doing a background check gives board members information they might otherwise miss. Grant says his management company routinely runs business credit reports on applicants who are the sole proprietor of their companies. It makes sense to find out if their businesses are as sound as they appear on paper.

Glen Kotowski, a retired police officer and managing agent of the 1,844-unit North Shore Towers co-op in Glen Oaks, Queens, calls criminal background checks “preventive maintenance.” Kotowski says he recommended that the co-op – a 110-acre co-op complex with an 18-hole golf course, indoor and outdoor pools, and a shopping complex – start doing checks about five years ago.

Those checks have raised some red flags – nothing overly dramatic but useful nonetheless. For example, there was the prospective applicant who had warrants out for his arrest for failing to pay his parking tickets. While hardly earth-shattering, the information was extremely helpful to the board in reviewing the application. After all, asks Kotowski: “If he can’t pay his parking tickets on time, what makes you think he would pay his maintenance on time?”

Good question.

 

 

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