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What your alteration agreement shouldn't overlook.
AUTHORDennis Greenstein, Seyfarth Shaw
In alteration agreements, the devil is in the details. Some of the problems that arise with alteration agreements might sound so minor they’re amazing. We’ve had situations where we’ve gone to the effort to do the alteration agreement, and then we go to check, and it turns out that there’s no completion date in it, for example. Or someone didn’t sign something, like their name. Little things like that can be absolutely mind-boggling when you’re trying to enforce the agreement.
Don’t leave any blanks. The way to avoid these omissions is to have the lawyer get back the signed copy or to review it before it’s finalized. Make sure everything has been completed. The managing agent should be a second set of eyes. There should always be an overseer, someone who’s quarterbacking, making sure that whatever is sent out from the lawyer is really followed through. The one thing that’s easy should be making sure everything’s filled out and there are no blanks in it.
Insurance matters. A big chunk of our alteration agreement is details about insurance. We advise the board and the managing agent that they should make sure that either the insurance agent or the broker looks at it. The managing agent might as well, also. This is really critical. A lot of times we get a certificate of insurance, which is not the insurance policy. You can’t rely on it. You have to look at the actual endorsements in the policies. And we insist that the copies of the policy and the endorsements be sent over before any work starts. Somebody is going to have to look at that to make sure that if it says it’s a million dollars of insurance, that that policy has a million dollars and not $500,000. If there’s a leak, a fire, an accident, that’s when you find out that the coverage that you thought you had either is not there or is only partially there, and that is really a disaster. It’s something very simple to avoid, and it’s very important.
Holding the apartment buyer responsible. There is a provision in our alteration agreements that any apartment purchaser is going to sign. It says that if the seller did any work inside the apartment, the buyer signs an assumption that says: “I am taking over any obligations from my predecessor. If that predecessor put in a new bathroom and those pipes leak, I’m going to be responsible. It’s going to be fixed by me and not by the co-op or the condominium.”
We have seen over and over again, a year or two after somebody buys an apartment, we ask to see the alteration agreement and that assumption of obligation. Can’t find it. Oops, wasn’t signed. Gee, it’s a blank exhibit. And that obviously is going to lead to a lot of trouble. You don’t know if a court is going to enforce the obligation that you thought was on the purchaser or just say, “Sorry, if there’s no written agreement, the co-op or condo pays for it.” That’s the bad news.
The armor of indemnification. One more thing. You want that alteration agreement to be very, very ironclad, including indemnifications that fill in little holes. For instance, you want to specify that the other party will pick up certain expenses, including reasonable attorney’s fees, which you’re not going to get out of the proprietary lease generally, unless you’re victorious in a lawsuit. A lot of things need to be very clearly set forth in that alteration agreement. You want to be able to look at the document and be able to say here it all is on one piece of paper. I’m not searching, looking at 15 documents, looking up cases to make sure I’m in good shape.
The importance of a good quarterback. There has to be coordination among all the parties — the lawyer, the managing agent, the board and its engineer. Everybody has to make sure that there’s somebody at the end of the day who’s going to see that that alteration agreement has been completed and that the documents that are required are in place. I’m big on having someone take responsibility — a quarterback. We insist that we get back a copy of the signed alteration agreement, and we keep it in our pocket. The board could always change lawyers or managing agents. The third copy should go to the board so some future board could pull a file out and be very happy that somebody did the right thing.
FROM THE COURTS
January 21, 2021
Great Jones Studios Inc. v. Wells
A co-op corporation claimed that shareholders’ alteration project to their apartment substantially damaged the co-op’s building and roof, thereby breaching the proprietary lease. The court ruled for the co-op corporation without a trial. The shareholders appealed and lost. Their argument that the breach of contract claim was barred by the six-year statute of limitation was denied. The shareholders’ illegal actions caused harm to the building and the roof.