New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

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Usually, when there’s a problem with one of the sponsor’s six rent-regulated apartments, the co-op board of 61 Eastern Parkway in Brooklyn leans on him to take responsibility. But sometimes the situation has a way of forcing the board to get involved.

“There were smells,” explains Rob Crooke, the board treasurer, about one such time. Cigarette smells, to be exact, and they were seeping from one of the sponsor’s six remaining rental apartments into the owner-occupied place next door. The 40-unit building had no rule against smoking, so it wasn’t a matter of enforcement, but board members knew from past experience that professionally sealing up cracks around the baseboards and pipes in the smoker’s apartment would be needed. And while the board could have easily argued that the job was the sponsor’s sole responsibility, instead, it decided to just hire a contractor and eat the cost in the interest of saving time and keeping the peace.

“There’s always a little bit of a dance with our sponsor when it comes to making sure he’s taking care of those apartments,” says Crooke. After all, it’s one thing to know that certain things are the sponsor’s responsibility as landlord, but another to enforce perfect compliance at the expense of what’s best for the building.

And so it goes in many of the New York City co-ops and condos that still contain at least a few apartments that are subject to either rent-control or rent-stabilization laws. Though the number of these apartments is gradually diminishing, plenty still exist, and the situation can cause conflicts and confusion for boards and tenants alike, involving repairs and maintenance, house rules, and amenities.

However, staying informed and planning ahead can keep minor issues from turning into major hassles or, worse, litigation. Here’s how to navigate the shoals.

The Rental Situation

Most buildings that were converted to co-ops or condos during the 1980s still include some apartments with tenants of either the original sponsor or an investor who bought them out, and most are subject to rent-control or rent-stabilization laws. According to the Rent Stabilization Board (RSB), the rent control program generally applies to residential buildings constructed before February 1947 in municipalities that have not declared an end to the postwar rental housing emergency. A total of 51 municipalities have rent control, including New York City; Albany; Buffalo; and various cities, towns, and villages in Albany, Erie, Nassau, Rensselaer, Schenectady, and Westchester counties.

For an apartment to be under rent control, the tenant (or his or her lawful successor, such as a family member, spouse, or adult lifetime partner) must have been living in that apartment continuously since before July 1, 1971. When a rent-controlled apartment becomes vacant, it either becomes rent-stabilized or, if it is in a building with fewer than six units, is generally removed from regulation.

Again according to the RSB, rent-stabilized apartments are those apartments in buildings of six or more units built between February 1, 1947, and January 1, 1974. Tenants in buildings of six or more units built before February 1, 1947, and who moved in after June 30, 1971, are also covered by rent stabilization. A third category of rent-stabilized apartments covers buildings with three or more apartments constructed or extensively renovated since 1974 with special tax benefits. Generally, these buildings are stabilized only while the tax benefits continue. There are exceptions. For example, if the legal rent exceeded $2,500 after a vacancy, the unit may be deregulated. Or if the unit was in a building converted to a co-op, it may be deregulated upon vacancy.

The primary purpose of these rules is to restrict rent increases, but the law also requires landlords to provide certain services and to abide by the terms of the original lease. Though the sponsor or investor is the one responsible for meeting those obligations, this relationship can affect the whole building.

“It means that you have two different classes of residents: the shareholders, who are governed by the house rules and proprietary lease, and the tenants, who are governed by their leases with their own landlord. That can be the cause of mix-ups and sometimes tension,” says Dan Wurtzel, president of Cooper Square Realty.

Repairs R Us

The number-one source of confusion on a day-to-day basis is that repairs and maintenance inside individual units are handled differently. The rules seem simple at first glance: anything within the walls of the apartment – including appliances and fixtures – are the responsibility of whoever owns it, whether it is a sponsor/investor or an owner-occupant.

But when some apartments involve a landlord-tenant relationship and others don’t, things can get complicated. For instance, if an owner-occupant’s refrigerator or sink needs to be fixed, he handles it himself, but when a tenant needs the same repairs, he must go through his landlord to get it done. “The tenant might call the super first, but it’s not the co-op’s responsibility,” says Neil Davidowitz, president of Orsid Realty.

Adding to the confusion is that the super may ultimately be the one to make the repair. It’s just that when he does, he’ll be working for – and therefore should be paid by – the landlord of the apartment, usually using a predetermined set of charge-back fees. “It falls to the managing agent to keep a close eye on these things and make sure the sponsor is billed properly when the building staff does work for him,” says Donald H. Levy, a management executive and vice president at Brown Harris Stevens.

“It’s tricky, because the rule of thumb is that staff will usually do minor services, like changing a fuse, at no charge. You also have to remember that staff is often getting gratuities. Sometimes it can be hard to say no when a tenant wants them to do work on the clock and tip them extra,” Levy adds. Keeping everyone in the building – staff, owner-occupants, and rental tenants alike – in the loop about who pays for what and under what circumstances helps minimize billing errors while ensuring that repairs and maintenance happen promptly.

That’s important, because a lax response from a landlord can result in a 311 call from the tenant, or worse, a major plumbing problem that goes unchecked and damages the apartments below. “We don’t want to take on things that aren’t our responsibility, but when there is something that could cause us all problems later on, we have to do what’s best for the building. Sometimes we’ll just go in and have it fixed and then say, ‘Look, this is what you owe us,’” says Crooke.

Know the Issues

But even under the best of circumstances, rent-regulated apartments need a managing agent who understands the issue. That’s the case whether one company manages the entire building or the sponsor uses a separate one for rental apartments. “I’ve seen it work both ways – there are different pros and cons to each. With a single entity, you have the expedience factor, because there are fewer layers of people to contact,” says Davidowitz.

At the same time, managers need to work extra hard to tally expenses separately and supervise building staff so they’re allocating their time fairly. Splitting the management between two companies, as most sponsors with large numbers of rental apartments do, helps keep billing separate. “You avoid conflicts by drawing a strict line in the sand,” says Davidowitz. The downside, of course, is that multiple parties require more coordination, which increases the possibility of errors. “It creates a lot of red tape,” says Wurtzel.

Boards also need to be on top of the ways new house rules or changes in amenities will affect rent-regulated tenants, especially if the sponsor or investor no longer has a seat. Seemingly minor changes could have major repercussions if they reduce access to amenities like intercom service, a doorman, or storage space.

“The classic example is the old luggage room in the basement,” says Mitchell S. Gelberg, managing director at Rose Associates. “If a renter was entitled to storage space originally, you can’t take it away without reducing rent. If the board is thinking of converting to assigned cages, they need to keep that in mind,” he points out.

That’s not necessarily reason to drop the idea, just reason to think ahead. For example, plenty of boards have gone ahead and installed cages in their luggage rooms, but they set aside space for rent-regulated tenants. “Address changes before they become a problem, so you’re not forced to react to an HPD complaint or litigation. That will damage relations between the board and the sponsor,” Gelberg says.

Ironically, the same can sometimes be said for overall improvements to the building if they mean raising maintenance or adding an assessment. “The landlord probably won’t be able to increase the rent accordingly, and at some point they’ll be looking at a negative cash flow,” says Levy. That can result in a sponsor dragging his feet on maintenance payments, not to mention bad blood.

Some guidelines for dealing with rentals include:

Keep in touch. As much as possible, keep all residents – rental tenants and shareholders – equally informed about building issues rather than having the sponsor act as a go-between. “We had major work done and our elevator was going to be out for several weeks, so we put up signs and had meetings in the building for everyone. Many of the tenants are older, so we went to them directly and said, ‘Hey, are you going to be okay with this solution? How can we make it work?’” says Crooke.

Be careful. There are very few aspects of your building’s business that won’t in some way be affected by rent regulations, so keep the basics in the back of your mind when considering any changes. “You always need to ask yourself, are their special considerations here? If you’re in doubt in any way, do not hesitate to check in with your attorney,” says Gelberg.

Take a long view. While the board exists to stick up for the co-op or condo’s interests, sometimes it makes sense to concede questionable calls in the interest of improving the building. For example, if a pest-control issue is threatening to spill over from a rental unit into the rest of the building, it might not be worth it to bicker with the sponsor over who should call the exterminator. “These things can become an issue for everyone in the building before you know it. Sometimes they just need to be taken care of,” says Davidowitz.

Be neighborly. The landlord may be legally responsible for taking care of his apartments, but as a board member, it’s hard to escape the fact that his tenants are also your neighbors. For example, Crooke recalls a case when an elderly tenant needed extra help getting out of her apartment so that plumbers could repair a waste line. Technically, it should have been her landlord’s responsibility, but the board took steps to make things easier for her – like delaying the repair until her family arrived. “You treat a situation differently when you know the people personally. It’s part of what makes your building a good place to live,” he says.

Watch the rules. New house rules also need to be carefully mulled over with an eye toward how they’ll affect renters. “You may want to go pet-free, but keep in mind that renters’ pets will need to be grandfathered in. You’ll need to think about how it will play out,” says Wurtzel, who adds that inconsistencies between house rules and renters’ rights make enforcement that much harder all around. It can also simply make living in a co-op feel, well, less cooperative. “We always try to avoid setting up these kinds of differences,” says Crooke. “After all, we are a community, and we do all have to live together.”

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