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What’s a common mistake boards make when they set out to negotiate a licensing agreement?
AUTHORJulie Schechter, Armstrong Teasdale
What’s a common mistake co-op and condo boards make when they set out to negotiate a licensing agreement?
I represent a small condo building where somebody on the board is a real estate attorney. In a lot of smaller buildings, boards try to negotiate contracts, especially if there’s an attorney on the board, because they don't want to incur legal fees. If you're dividing legal fees among six people, it's a lot different than dividing them among 200 people.
And this lawyer on the board you represent thought he could negotiate a licensing agreement?
That's right. A developer was building a new building next door, and the board president, who was a real estate attorney, thought he could handle this. A number of issues occurred during the course of the negotiation. For example, the penthouse unit was sold, and suddenly the new unit-owner had different demands than the previous unit-owner. The board president realized he was in a little over his head, but the negotiations dragged on for so long that the developer next door sued the condominium.
Not a good situation for the condo.
It's not just the developer who can sue. Any landowner can sue if they need access to a neighboring building to do Local Law 11 facade work, for example, or a roof replacement. There are reasons why you may need access to your neighbor’s property, and if the neighbor's refusing to give you access, the courts can help with that. There's something called an 8-81 proceeding where you can go to the court and demand access to your neighbor’s property if they're not cooperating.
What happened next?
When the developer got frustrated and sued the condominium, that’s when the board hired me. I was given this half-negotiated licensing agreement, and there were a lot of issues. For example, the board's biggest fear was that they were going to incur a lot of legal fees when, in actuality, a typical provision in this type of agreement is that the developer who's demanding access pay all of their neighbor's professional fees – including engineering and legal fees. As soon as the developer agreed to pay my legal fees, the board wished they had brought me in earlier. The whole time they were trying to save on legal fees, and it turned out they weren't even responsible for them at all.
What else would you include in a licensing agreement?
Any time the co-op or condo I'm representing is going to incur expenses because of the construction next door, let the neighbor pay for it. There's a lot of dust that comes with construction, so let them wash my windows every couple of months. Sometimes unit-owners will lose the use of their terrace if scaffolding needs to be put up, and we've gotten fees for specific unit-owners who are affected by the construction.
How about rats?
That's another thing that we’ve put into agreements – routine exterminating, which the developer has to pay for. As soon as they start excavating, or really at any construction site, rats, rodents, and vermin all seem to gravitate. As the neighboring property, it's not fair if those animals all come onto our property.
What’s your takeaway for other boards facing the need for a licensing agreement?
For any boards that are facing a request for access, hire the right person, and not just a real estate lawyer. There are all kinds of real-estate lawyers. There are litigators who do exclusively real estate. There are attorneys who do just transactional work, when units are bought or sold. That's not the right person. You want a co-op and condo lawyer or somebody who specializes in construction law. That's the kind of person who would be best fitted to negotiate a licensing agreement.