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Why are alteration agreements in in self-managed co-op and condo buildings challenging?
AUTHORChristopher Tumulty, Tarter Krinsky & Drogin
Alteration agreements in self-managed buildings can be challenging. Can you explain why?
In a managed building, the managing agent typically typically runs interference. They provide the alteration agreement form to the shareholder, the contract is signed between them, and the managing agent oversees the process. But in a self-managed building, it’s the board’s responsibility to make sure that the alterations are done properly, safely and in conformance with any requirements that the building may have.
If a shareholder wanted to do a major renovation and needed to file a permit with the Department of Buildings, would a board member have to sign off?
Yes. When a permit is required, there is a line on that application for the condominium or co-op board or the agent to sign off, as well as the apartment owner.
Does that mean the board is assuming some liability?
These applications can often be self-certified by an architect for the owner, but if you're going to be putting your name on that document, it's a good idea to have an architect review it first. You also want to make sure you impose certain requirements on the owner with respect to the renovations in the alteration agreement itself.
What kind of requirements?
First of all, you would want to delineate the scope of work that you're permitting the shareholder or the unit-owner to perform. You also want to ensure that they have properly licensed contractors, comply with laws, have proper insurance and that they reimburse the board for any professional fees or expenses. And you can impose a time limit for how long this permission lasts, whether it’s six months or year, as well as restrictions on when the work can be performed.
When you say reimburse fees, what would those be?
If the board hires an architect to review the alteration plans, the fee would be passed on to the shareholder or unit-owner. If there is an attorney involved, the owner would pay their fees. Another term that’s often included in alteration agreements requires the owner to take care of any liens that were filed – for example, by a contractor who wasn’t paid in full. So the idea is that the board is consenting to this alteration, but it should be at no cost to them.
But what happens when an owner does something that wasn’t in the plans? How should the board confront the problem?
I had a scenario recently with a self-managed co-op that had a new president. The co-op had an alteration agreement, but it needed to be revamped, and they were faced with a tenant who wanted to do a gut renovation of her apartment. We revamped the agreement and created a standard form, which is important because you want standard terms that are applicable to any owner who wants to engage in a renovation. And with that first unit, there was no problem. But another owner wanted to perform alterations, and issues did arise.
What were they?
There was a delay because of a dispute between the two architects as to what should be included in a Department of Buildings application, and how certain components were being described. The delays ran on and on, and the contractor's insurance expired. So the board had the right at that point to stop work, withdraw their consent, and require that owner obtain new contractor's insurance, as well as reimburse the board for all the costs and expenses they incurred. Only then did the board consent to allowing the alterations to continue beyond that initial period.
So the board had to step up and act as fiduciary for their building.
Exactly. Even with a well-crafted alteration agreement, that’s a role a board should be prepared to take on.