How does a nightmare begin? For the Yacht Club Condominium on Long Island, built in the mid-1980s and consisting of 128 two- and three-story townhouses, it started with the arrival of Hurricane Sandy on October 29, 2012. Every one of the 16-building complex’s units was flooded and seriously damaged. The flood water was so high that a boat sailed across Reynolds Channel, over the Yacht Club’s bulkhead, and onto someone’s front lawn. Every car in the immediate area was fully submerged, flooded, and destroyed. And every unit had anywhere from inches to multiple feet of water on its first floor. Other buildings in the flood area faced similar horror stories, of course – the storm destroyed 95 percent of the homes in Island Park – but this first-hand account by Stewart Wurtzel, a partner in the Manhattan law firm of Tane Waterman & Wurtzel who became the Yacht Club’s board president in the aftermath of the storm, is particularly compelling as he recalls the multi-year efforts by the board and unit-owners to make themselves whole.
I have represented cooperatives and condominiums every day of my 32-year legal career. And on multiple occasions in every one of those years, I have had to remind my client board members that theirs is the least appreciated position on Earth. Similarly, I have had conversations or gotten requests from angry board members that made me scratch my head as to why someone on a board could get so infuriated with a resident. But after two-and-a-half years as board president, I now understand. Indeed, I have experienced the rewards and frustrations that are experienced on the client side of the phone.
The Yacht Club Condominium, located in Island Park, New York, has a diverse mixture of people, ranging from snowbirds and families to couples who have downsized after their children have moved out and those who simply enjoy the proximity to the beach. After the storm, in the months leading up to the annual meeting on October 1, 2013, the unit-owners were generally unhappy. Many felt that they had been ignored by the board, which did not communicate with them. They were also angry with the progress of insurance payments and with the quality of the work done by the remediation company retained to rebuild the complex. Another issue: exterior siding had been torn away from the buildings during the hurricane. In addition, the winter of 2013 was brutal, with temperatures regularly dropping below freezing. That left many unit-owners quite literally in the cold, suffering from damage to their units. Our insurance agent’s office and home, also located in Island Park, had suffered extensive damage, so his ability to respond to his clients’ needs was hindered.
Then there was dysfunction on the board. In the months before the election, several members had resigned their seats and had not been replaced, leaving the board in a fragmented state. The remaining members turned deaf ears on offers to help. (I had personally offered my assistance on several occasions and never heard from anyone.) And when the board finally received insurance proceeds to distribute, it deducted $5,000 from each unit-owner’s distribution as an assessment – without presenting an adequate explanation. Residents were further incensed when, as a condition of receiving the insurance proceeds, the board also demanded that unit-owners sign a general release exempting the board and management from any liability for the effects of the hurricane.
As a result of all this, many unit-owners were threatening lawsuits against the contractor and the condominium. There had not been an annual meeting in two years, and one was scheduled on extremely short notice for October. In the interim, a vast majority of the residents took it upon themselves to organize and try to force changes on the board. A petition seeking a special meeting was circulated among the community. At an informational meeting held in August 2013, tempers flared.
I felt it was time to make a change. Notwithstanding the warnings I had given to my clients throughout the years about the pitfalls of board service, I agreed to run for office. In the fall of 2013, I was one of five new members elected to the board; one prior board member was re-elected. Getting a solid majority of the votes meant I was to serve a three-year term, and at our first meeting, I was elected president. We were fortunate to have a collection of new board members with skill sets that were particularly useful for the problems we faced: there was Gary Smith, a CPA; James A. Smith, a construction contractor; John Cestaro, a local real estate broker; and Alex Krupnick, the man who spearheaded the petition drive and was determined to improve communication between the board and the residents.
The list of major problems we faced was enormous, and the first one involved communication and trust issues. At our initial meeting, Alex Krupnick was blunt. He said we had to restore the confidence in the board that many unit-owners no longer had, and eliminate the “deep disconnect” between the board and the residents. Therefore, within the first month of our election, we set out to create new lines of communication with the residents: we held a pizza party on our lawn to introduce ourselves and get feedback from unit-owners; we started publishing summaries of the board meetings in our monthly newsletter; and we increased the e-mail communications to residents, keeping them up to date on major developments.
While we were doing that, we needed to understand the extent of our flood insurance coverage, and how it was computed and distributed. Many residents mistakenly believed that the condo’s flood insurance covered them completely, and that, therefore, they did not have to have their own coverage. They were also still upset that the previous board had deducted $5,000 from “their” insurance proceeds. And even though siding was missing from every one of the buildings, our wind policy claims adjuster told us that the loss determination was less than our deductible. So our carrier was giving us nothing.
There were more issues. We attempted to file claims for damage to our common areas with the New York Rising Housing Recovery Program (NYR), a state effort set up to assist victims of recent storms in the region. But NYR would not even consider our application unless two-thirds of individual unit-owners submitted claims. We subsequently spent weeks cajoling, requesting, and pleading with residents, trying to get a sufficient number of them to act. Board member Gary Smith characterized his futile 19-month interaction with NYR as the “most disappointing” aspect of his board service, as NYR has continually changed its rules, still has not paid the condominium’s claim, and even issued a stop-work order that held up our repairs. At one point, NYR demanded to inspect the 40 units of owners who had filed individual claims. In March 2015, it required inspection of all 128 units. New York Rising has still not committed to any payment.
We also assisted many of our unit-owners with their supplemental insurance claims because they believed that their original insurance adjustments were erroneous or did not include everything to which they were entitled. Gary Smith spent substantial time helping residents fill out claim forms and interacting with the adjuster and the insurance agent on their behalf. Our insurance coverage consists of 16 different policies, and payments to unit-owners were not being made at the same time. In fact, 11 unit-owners have still not received their supplemental payment, and there are a number who are still dissatisfied with the adjustments that they did receive.
As I mentioned earlier, many of our residents were displeased with the remediation company. In the rush to begin repairs after the storm, our predecessors had hired a Texas-based company to perform the remediation and base level reconstruction of the first floor of all the units. Many unit-owners were not happy with the work or the amount of insurance money paid, and many were screaming that the remediation company had stolen millions of dollars from the condominium. They were clamoring for a lawsuit.
We now needed to determine whether there was any basis for those claims. Our insurance adjustor was not always responsive to our requests for information. Months were spent reviewing unit-owners’ claims, and once that was done and submitted to the company, the board negotiated with the Texas remediation firm. In the winter of 2014, when we were close to a resolution, a few of the 39 unit-owners who had filed claims were not satisfied with the offer that had been received, and we were forced to go back to the table. In the end, the firm went out of business and no payments were made to any of the unit-owners.
When the board decided not to pursue legal action against the defunct company, the overwhelming majority of unit-owners acquiesced; however, a small number of residents expressed their disagreement in terms ranging from understandable frustration to vitriol against the board. This grew out of our particular situation. For years, the condominium had been run very loosely, and many residents did not fully understand the roles, power, and obligations of a board of managers, their own rights and obligations as unit-owners, or the interplay between the two. So they complained.
One factor we had to deal with was that resolutions of the many construction repair issues were highly interdependent. Consequently, we did not have the luxury of solving one problem at a time before tackling the next. We needed to deal with issues on parallel tracks even though a problem on one track would substantially affect or even derail the plans on the others.
We started to address the repair to the exterior siding and the common areas, retaining an architect to advise us on plans for siding repairs. We hired an insurance appraiser to help challenge the insurance carrier’s failure to pay any benefits on our claims. Rather than assess unit-owners a lump sum to pay for needed repairs – that would have come out to a bit more than $1.6 million, or $12,500 per unit-owner to be paid immediately – we decided to seek unit-owner approval for a $2 million common-charge line of credit. In this way, the loan was basically secured by the common charges, so if we defaulted on the loan, the common charges would be paid directly to the bank. We knew we needed to meet with the unit-owners in order to explain and sell the need for borrowing.
We had tremendous concern that if unit-owners did not approve the borrowing, we would be forced to impose that lump sum assessment that many could not afford – or else put off necessary repairs. We needed to do this sales pitch even though we knew there were key questions we would not be able to answer. For instance, would we ever need to draw on the line of credit? The answer would depend on the amount of insurance money we received, the amount of grant money obtained from New York Rising, whether any money was owed to us by the defunct remediation firm, and the final cost of all the repair work.
Before we even applied for the loan, we imposed an assessment of $200 per month (more than 50 percent of the common charges at that time) to start paying for repairs. If residents approved the line of credit, the assessment would go toward repaying the loan. We promised there would be no further assessments to repay the line of credit, but because of all the unknown factors we could not advise our unit-owners at that time how long that $200 assessment would remain in place.
Some unit-owners were skeptical about committing to this borrowing while we still did not know whether it would be needed. We informed them that the time frame for resolution of the insurance and New York Rising claims was unknown, and that if they delayed approving the line of credit, they could face multiple winters still exposed to the elements. Without access to the line of credit, repairs would have to wait until collection of the assessment yielded sufficient money to pay for the needed repairs. In the end, we received majority approval for the line of credit.
But with every success came new challenges. We soon found that the reconstruction problems facing the condominium were going to be worse than initially imagined. The siding damaged by Sandy was not the original. About 15 years earlier, the entire complex had new siding installed over the existing siding. The architect we hired, Darrin Buiso of SRF Architects, discovered that the reason why there was such a high failure rate for the siding during Sandy was because the original version was not installed over sheathing. Most new walls need sheathing to strengthen them, to act as a nailing base for siding and to boost insulation. When the new siding had been installed, nothing had been done to correct the original defect. Consequently, the siding had nothing on which it could be firmly attached. It could easily be pulled off by hand.
Since there was no sheathing under the original siding, it was also easy to determine that there was inadequate insulation between the siding and the interior wall. No wonder everyone was cold! We were determined to reconstruct these buildings and do the job better than when they were built. It became apparent that we would be dealing not just with siding replacement, but with reconstruction of the entire exterior of every single building.
To get community support for this, we held informational meetings showing the new plans and designs and explaining the problems. Most of the community was excited; some were nervous about the cost or about being ripped off by another contractor; and, of course, there were a few unit-owners who were capable of voicing their opinions only by making nasty or derogatory comments that we did not know what we were doing. One unit-owner even pointed to the insurance company’s finding that we suffered only $18,000 in damages as proof that we were being wasteful in planning this new work!
Build We Must
As I mentioned earlier, we were lucky in our board membership. James A. Smith, for example, was accustomed to supervising large construction projects. As vice president of operations at Heritage Mechanical Services, he has supervised such multi-million dollar construction projects as the World Trade Center, 99 Church Street, and the Metropolitan Museum of Modern Art. The project at the Yacht Club would be treated and supervised in the same manner. Plans were drawn requiring that both layers of siding be replaced with insulated, sheathed exterior walls. Detailed specifications and drawings were prepared, and the job was bid out.
We tried to improve the walls both practically and aesthetically. The architect proposed a two-color scheme (blue and tan) that was a substantial change from the industrial gray that had previously been installed on all the buildings. He also added new exterior lighting and some simple details to add idiosyncratic character: sconces, doghouses, and shutters. We had also retained a roofing expert to inspect our 16 roofs, which were also about 15 years old. The expert, the architect, and the contractor all reported that the roofs appeared to be near the end of their useful life. Some longtime residents reported that they were told that when the roofs were replaced more than 15 years ago, a 40-year warranty had been promised.
A review of all our corporate records, calls to former board members, the installer, and the manufacturers showed no record that a warranty was ever issued. Apparently, some things had been treated casually by our predecessors. Board members seem to have taken records to their own units. That caused problems. Papers taken away had never been put back, and, no one could find any information relating to the prior siding installation and the roof installation, including warranties! We had to proceed without it.
The contract for the siding was sent out and three bids were received with a substantial difference in pricing. The job was ultimately awarded to John Cusumano Construction for an initial bid of $2.3 million. It would be the single largest job Cusumano had ever undertaken, and the board was intent that it be done correctly. Besides the project manager’s and the architect’s supervision, James A. Smith walked the complex and met with the contractor and project manager just about every day during the course of the installation.
As the project neared completion, Smith described the work, along with landscaping and pool upgrades that he supervised, as the most satisfying aspect of his board service. “We made all of our buildings sounder and more beautiful than they’d ever been,” he said, “and we made the Yacht Club a more attractive place [in which] to live.” While each unit-owner will have paid about $20,000 each when the assessment is complete, board member John Cestaro, a local real estate broker, estimates that the value of each unit has been increased by at least $50,000 as a result of the work that we undertook.
Several months before we had received the siding bids, we had retained insurance appraiser Jeffrey Pellet to represent us in our challenge to our liability carrier’s determination that we were not entitled to any insurance proceeds. Substantial time was spent analyzing our damages, the costs of repairs, and the scope of our coverage. We filed for the appraisal process, and shortly before we were scheduled to hold an appraisal, the insurance company increased its offer from the initial $18,000 made to our predecessors after the first walk-through to over $1.3 million.
We settled for that and decided to use the money to replace all the roofs at the same time we were replacing the siding. A very wise decision, given that as the old roofs were ripped off we discovered that there was substantial rot and damage to the plywood supporting the roofs. Having the same contractor perform both the roofing and siding jobs also saved us substantial money, as all of the scaffolding and crews were already mobilized to do the work. By synchronizing the roofing and siding jobs, we guaranteed the water tightness of these buildings for years to come.
Despite all reasonable precautions, there were still instances of burst pipes, leaks, and damage to the interiors of units during the siding removal and reinstallation. Eighteen units had second-floor decks that were rotting and sagging because they, too, were built improperly by the original developer. They needed to be completely rebuilt, at a cost of $13,000 per deck. Our common-area landscaping had to be repaired as it suffered substantial damage from the salt water. All told, the cost of repairs would exceed $4.4 million, of which $1.6 million was covered by insurance.
Sandy repairs were not the only issue that divided the community. John Vitale, the developer who owned the property and waterfront bars Paddy McGees and Coyote Grill immediately to our south, announced that he was going to erect two large apartment buildings and seek rezoning of the property to allow for high-density residential apartments. The buildings would block the water view for several of our buildings, and they would increase traffic on the streets immediately adjacent to our property.
However, the community was bitterly split about how and whether to challenge Vitale’s plans. Many felt the development would be good for the neighborhood; some felt that traffic, congestion and flooding would become serious problems; others were concerned that their views and peace and quiet would be destroyed.
The board hired a lawyer, who filed objections before the town zoning board. At the end of the day, face-to-face meetings with Vitale, James Smith, and me resulted in an agreement that included some concessions and a substantial contribution from Vitale to our repair efforts. Many unit-owners not directly affected by the construction were pleased with the settlement; others who were more directly affected accused the board of selling out.
No Good Deed Goes Unpunished
Dealing with major issues does not eliminate a board’s need to deal with everyday problems, such as people neglecting to clean up after their pets, violating parking and speed limit rules, or delaying common-charge payments. In some instances, the violators of these rules were the same people who had made the most vitriolic comments about the board during its decision-making processes.
It became easy to see how a board could become hostile to such people, but we went out of our way to ensure that every unit-owner was treated with fairness. On several occasions, I had unit-owners yelling and screaming at me over some of the decisions we had made. They didn’t seem to realize the amount of effort and thought we put in, and the need to balance the competing interests of all residents in the community. And they didn’t know the time we put in. With all the issues we faced, board meetings were very, very long, typically four- to five-hour affairs every month. Despite my frequent advice to my clients that the board should allow management to handle most of the daily issues, it was clear that we had to be a hands-on board, actively involved with every aspect of restoring the community. Consequently, over the two-and-a-half years I’ve been on the board, almost 10,000 e-mails regarding the condominium have come or gone through my mailbox.
But few of those complaining seem to understand that or care that board members are also neighbors facing many of the same problems, who volunteered their time and experience to attempt to improve the community for everyone. We don’t act arbitrarily. When the physical appearance of the complex was being improved, for instance, we also looked at ways to combine necessary repairs with practical concerns, and thereby enhance the quality of life in the community. For example, our complex does not have a clubhouse, so we looked into the possibility of installing amenities which could be used and enjoyed by all residents, such as a shuffleboard, bocce courts, a heated pool, and a dog run.
While many residents spoke in favor of some or all of the amenities, opposition ranged from well-founded, well-voiced objections to those who could not express their sentiments without being derogatory and resorting to name calling. We eventually tabled many of the ideas.
One of the other lessons I have learned in my legal career is that notwithstanding the substantial size of the investment made by individuals in their homes, many are quite happy to be complacent and not attend the annual meetings. In many cases, one of the best indications that the community is happy with the way things are run is the failure to attend the annual meeting. When there are problems, people show up in force demanding answers and/or change. I am happy to say that at our annual meeting in October 2015, the Yacht Club failed to achieve a quorum.