Sue: We are a small cooperative formed in the 1980s by residents in the building who ran the board until late 2000s. Mostly, they “ran” and controlled everyone new to the building. The income from the commercial space, which was sublet by a second corporation (run and owned by original co-op members), went directly to them, and they paid the co-op very low “rent.” It’s only been the last five years that a new board was voted in and the proprietary lease, house rules, and protocols were put in place.
The board is now being asked by one of the original founders (who had been board president for 24 years, doing very little to upgrade the building and was mostly self-serving) to “waive” the process for adding his new wife to the stock certificate. His wife has also been a resident since 1980s. His position is that he and his wife have been residents of the building for over 20 years and shouldn’t have to follow protocols for “new” people coming into the building. There are also fees involved, which go to the managing agent (not the building) to pay for processings. The process, by the way, is similar to refinancing requirements: credit and lien checks, recent tax reports, etc. Any thoughts on this? If we waive it once then it must be waived for all.
Minneapolis: Hi there. I don’t think you need to worry [that] not doing a background check on a current resident in this very specific situation will set a precedent against doing due diligence towards new members who have no prior relationship to the building. If this woman has been living in your building for 20 years, there’s no need to make her undergo a credit check, tax reports, etc., unless your goal is to make the useless former president jump through hoops – which you, as the new board, are entitled to do if you see fit and that’s within the rules.
Dax: Sue, like you, we believe that making an exception in this case could create a precedent for other long-time residents to seek shareholder or co-shareholder status. But we also agree with Minneapolis that a long-term resident shouldn’t encounter the same level of scrutiny as would a new applicant.
For this reason we typically suggest co-ops have or adopt a provision that provides an expedited, simplified, and reduced fee process for a long-time resident who requests to be added to an existing share, as in the cited case. The process we recommended usually includes a review of the resident’s occupancy experience within the co-op, among other things.
However, an exception should not be a “seat-of-the-pants” event. It should be codified (with a set of standards to be met) as a written addition to the co-op paperwork – subject to attorney review – then voted upon favorably by shareholders to better ensure a majority agreement with the change and to help safeguard against forgetfulness or preferential treatment playing a role when the exception is implemented. The exception should be structured so that it does not become a new member application loophole.
JG in NYC: Adding a second party to the stock certificate should be akin to approving a buyer. In the event the original party should pass away, can the second party maintain the maintenance payments? I can’t think of any of the units we sold with two names on the share certificate where the sale would have occurred without the combined wages. Would you allow a couple to add their 18-year-old? Parents move out, and leave the teen behind, legally entitled to live there ... As a minimum, assets and liabilities, life insurance and employment, credit history should be examined.
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