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Try to negotiate with shareholders before taking them to court over illegal alterations.
AUTHORSteven Troup, Partner, Tarter Krinsky & Drogin
PAGE #p. 53
Negotiating with shareholders over illegal alterations can help a board avoid a lawsuit – sometimes.
A little over a year ago, I was retained by a small seven-story, seven-unit artists’ loft building in the East Village. One of the first problems they wanted me to address: the illegal alterations that the top-floor shareholder had made to the roof. That shareholder had been the sponsor of the conversion from rental to co-op more than 30 years ago, and he had added an illegal penthouse, and deck, changed the coping stones, and added planters to the roof parapet wall. Because of these additions, the parapet walls and coping stones had partially deteriorated. When confronted, the seventh-floor shareholder dug in his heels. He probably resents that this board – after all these years, after “all he’s done for the building” – would treat him in what he probably considers to be a shabby manner.
In a situation like this, I recommend that you don’t jump into litigation immediately. You try to negotiate. We did – and the shareholder had competent counsel. We made some progress in negotiations, but not nearly enough. The board wanted all the illegal structures removed from the roof, and the violations of record removed. The seventh-floor shareholder didn’t even acknowledge that they were illegal.
Finally, the Department of Buildings came in and placed violations on the roof and the penthouse. Because negotiations did not progress far enough, litigation started after about three months. We sought an injunction to enjoin the seventh-floor shareholder from occupying the illegal rooftop structures, and we have succeeded getting many of the unsafe conditions on the roof removed.
This situation has played out, so far, in excess of $100,000 in attorney’s fees to the co‑op. There was a partial vacate order directing that no one occupy the penthouse because it was an illegal, dangerous condition. Because the building was separately moving its individual gas meters on each floor, the plumber and Con Ed had both tried to come in and perform inspections. The plumber couldn’t do the work, however, because ConEd refused to do an inspection as a result of the partial vacate order.
We’re now in the process of removing the remaining illegal structures and repairing and restoring the roof, which is probably going to cost somewhere between $125,000 and $200,000. Con Ed refuses to get back into the building until that partial vacate order is lifted, which can’t happen until the penthouse is removed. We’re approaching the heating season. The shareholders, especially those with children, are very concerned about heading into winter without gas heat.
Bad things can happen when board members and shareholders don’t pay attention. Unapproved alterations happen all the time. When people see something, they should say something.Allowing one person, no matter how highly regarded or trusted, to have full control of everything and not share crucial decisions leads to this kind of dispute, which is long, hard-fought, and very expensive. Also, a modern alteration agreement is a very important tool for a co-op to have whenever there is serious construction going on. If you are doing anything greater than painting and/or scraping floors, an alteration agreement should be entered into between the shareholder and the co-op, and it should be strictly enforced.