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heating oil buying cooperatives - st Aug 29, 2008


what are the ways we can save? buy in in a capped price? heating oil cooperative? input needed.

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question about keys - GK Aug 27, 2008


Is it customary for a managing agent to have a key to the main door of a building so that he or she can access public areas? I assumed that our MA had a key, but something happened recently that made me think he doesn't have one.

I asked other board members if the MA had a key, and they said that they didn't know.

Before I bring this up directly with the MA, I thought I'd ask the knowledgeable folks here: is there any reason why an MA shouldn't have a key to the main door of the property he or she manages?

Thanks in advance for your responses.

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Well, I guess your agent should have access to your property, just like workers need to get access to their workplace. While the MA may not have an office in your building, it is a place that the person supervises and needs access to it. Or, shoud your supervisor and agent representative not be trusted?...

AdC


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Thanks, AdC. My assumption was that the MA would have a key. I'm surprised he doesn't. But I'm still relatively new at this stuff. Maybe the norm in most buildings is for the MA not to have access.

So I guess I'd like to hear from people: does your MA have a key to your building?

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I don't know if has one or not; if he were to have one, I would not object.

AdC

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Thanks. I guess this whole question is moot, because I finally did ask him directly if he had a key to the building, and he indeed does.

The reason I thought he didn't is that he recently left our monthly financials in the outside vestibule of the building. Other board members and I were shocked and when we asked via email why he had left them outside, where anyone could have picked them up, his response was that he has an arrangement with the super whereby he leaves the financials and the super recuperates them immediately and distributes them to the board. The only reason I could see for this arrangement, which strikes me as far from ideal, is that he didn't have access to the building. In a nutshell the MA blamed the super. I don't fault the super, though. In my opinion no MA in their right mind would leave confidential building information (like our monthly financial statements, which also include information such as who is in arrears, etc.) out in the open like that. If not sent via the postal service, which I would prefer, they should be handed off. Not just left like that.

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They should be mailed or handed off to a board member for distribution. Period.

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Anonymous - Your MA should not leave reports or other materials for BMs where anyone can take them. If he leaves them in the open and the super is to retrieve them immediately, he obviously isn't doing that if you found some in your outer vestibule. The MA should ring the super's bell (if he lives in the bldg) and give them to him directly. If the super is elsewhere in the bldg (not in his apt), the MA should call him when he arrives so the super can come get them. If the super is out or isn't available at the moment, the MA should have a key to a bldg room (office, storeroom, super's workshop) where he can leave such items and leave a message on the super's phone telling him where they are.

The MA and super should also not leave items for BMs at their doors. You'd be surprised how often they disappear. I know bldgs where owners sneak around at odd hours looking for items at BMs' doors, hoping to get private info just because they're nosey or that may make the board look bad if they're opponents of BMs and hope to discredit them. They can make excuses for how they got the info (it was left out, they got it by mistake) and they'll twist info to suit their purposes in the face of all the other owners.

If the super has reports, etc. for BMs and they aren't home, he should put a note on their mailbox that says: "Package delivery - see super" (or doorman). I suggest you talk to your MA and change how he leaves mgmt materials at your bldg for BMs.

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Thanks, BP. (Anonymous above was me; sorry.) During my last term I proposed that the statements be sent through the mail, but a couple of board members felt that the packets would be too large for our mailboxes. I'm pretty sure they'll fit, though, in fact I think it's empirically verifiable, so I'll bring it up again now with the current board. A possible argument might be that mailing will cost more, but … pff. The cost of losing the statements, or of someone's privacy being violated, is far greater.

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Part 1 - To assess or not to assess - NKT Aug 23, 2008


My opinion is that any co-op corporation or condo association without an annual assessment income stream is operating with fiscal recklessness and fiduciary irresponsibility. Why such strong words? As soon as the property is built, it begins to age; it depreciates and it is inevitable. Why not plan ahead and plan effectively?

But wait! Let’s do a special assessment! But, the shareholders are up in arms. How dare you promote a “special assessment”!

Let’s attack the stigma of special assessment another way. Is it not better to plan for a child’s college attendance at the time of birth rather than to awaken to the need for funding in the first year of college attendance? Yearly amounts placed into savings are certainly more palatable than funding the surprise tuition fee of $5,000 to $50,000 without the benefit of prior savings. Certainly capital improvements are as inevitable as or even more inevitable than college tuition payments.

So let’s see if this works for one’s building. Start today, or very soon, with a relatively low per share assessment and work up the amount year after year after year after year. Yes, one can stabilize the per share assessment at a plateau. This recognizes that aging starts slowly and then increases or accelerates over time, until capital replacements or improvements are made. In some cases, because of past failures to create a capital reserve funding program and to actually add capital, starting low may not be a suitable option.

Has everyone become aware of the AICPA capital replacement schedule that should accompany the annual report each year? And, by the way, this is not a recent phenomenon. Our co-op corporation publishes the report as required. We have checked other buildings in our immediate area and have found that many avoid the necessary engineering review and thus decline to publish the report. What are the boards hiding? Attentive auditors publish a footnote, but how many shareholders read the footnotes or understand the footnotes?

In our case, we hired an engineering firm many years ago, e.g.: upon conversion to co-op; well before the AICPA made its prescient pronouncement. In turn, our engineering firm updates the report every two years. Yes, the first analysis and report was a bit pricey, but as we have continued the engagement with the same firm, the recurring costs are substantially less. Essentially, the schedule defines the major mechanical and structural components of our site/building and postulates the useful life in years remaining and the estimated cost to replace the items at current costs. Inflation is not included. Our schedule, much should be similar for all buildings, contains line items such as heating boilers, hot water boilers, roof fans, lobby, hallways, emergency generator, emergency lighting, fire pump, sidewalks, garage decks, recreation deck, walls & fencing, pool, driveways, roof, terraces (owned by the co-op), windows, HVAC chillers, HVAC condensers, water pumps, elevator system, fire alarm system, security system, compactor system, etc.

Using the above schedule, we create a spreadsheet for each line such that the completed spreadsheet reflects how much capital reserve outflow we will encounter in each year based on the engineer’s life expectancy study. Now all should understand that these are engineering and cost estimates. In some cases, the useful life of a line item can be extended by judicious annual maintenance and repairs. Nevertheless, we have a fifteen year forecast. It’s very simple and can be updated quite easily with today’s spreadsheet programs. Using a spreadsheet where we can modify the life expectancy by a year or two is also very utile. Most importantly, it is very visual. And, a board member with some finesse has created a bar chart to display the life spans as estimated.

By example, the useful life of one’s vehicle can be extended by transmission overhauls, alternator replacements, shock absorber replacements, new belts, new writing and plugs, etc. But at some point, typically for economic reasons, one replaces the older vehicle with a new one. Unfortunately, one cannot sell a building and purchase a replacement, which is why the AICPA schedule wedded to a stable financial plan (with assessments every year; yes that is the mantra herein) is the safest, most prudent and fiscally responsible approach for all shareholders. In our building, there are never any surprises.

Thus, all boards are enjoined to build the capital asset reserve program and the underlying processes so there are no surprises and no overwhelming burden because of a surprise. And especially, all need to effectively plan to avoid the mortgage/loan market trap. Taxes on capital improvement (reserve) income one cries! Accumulated depreciation should offset any surplus until such time as the capital reserves are expended.

Why avoid loans in lieu of assessments? Loans are non-productive for the borrower e.g.: co-op and shareholders, and loans suck the financial underpinnings (interest expenses) from the co-op condo. And a decision today, e.g.: borrow, preempts other options in later years. Corporations which produce a product borrow to create more product or new products. A co-op has no way to produce more apartments, so why borrow and to what purpose? Oh, I know why! The knee jerk reaction is for the board to say no increase in maintenance costs this year or next year. Who is fooling whom? In my view, borrowing hides poor fiscal management and inhibits real nuts and bolts financial planning, e.g.: a long term strategy. All need to note that a loan does not yield more products, but erodes useful income (e.g.; interest). So in the parlance of the financial industry is one’s co-op or condo rated AAA or is one’s co-op rated as junk bonds. The board must think financially and fiscally.

Why have an assessment and not use ordinary maintenance income? The answer is in the tax treatment. Ya need to read the IRS rules and behave accordingly. Our assessment is imposed ten of the twelve calendar months to show the separation of income streams (maintenance vs. assessment) to avoid an IRS challenge. Assessments are added to the purchase price of the shareholders apartment when calculating the cost basis for sale purposes. Unless kept segmented, the IRS can challenge the calculation and the shareholder loses.

By the way in NJ, taxes are based on the assessed value of the building + the non-current principal of the underlying mortgage – capital reserves. For an example, a building with a $57,000,000 assessed value with $14,000,000 non current mortgage principal and no reserves is paying taxes based on the sum of $57,000,000 + $14,000,000, for a total tax basis of $71,000,000. Not only do the shareholders pay for useless interest, but they also pay more taxes. Cute! Do the shareholders know; does the board even know? Who cares, our maintenance is low. But interest expense and tax expense, means that other items are underfunded or not funded, thus less repairs are performed or less services and amenities are provided.

In our case, if a maintenance staff member is asked to replace a sink washer or the trap beneath a sink or the flushometer, the visit is free to the tenant for the first thirty minutes, save the cost of the parts. Other buildings charge the moment the maintenance worker enters the apartment. We can discuss this, but we feel our policy encourages shareholders to repair items rather than allow a small issue linger until it becomes catastrophic.

Our building started the assessment stream as soon as the building converted to co-op some twenty-seven years ago. Oh, by the way, we are a 500 unit coop in northern NJ. We retired (in the first twenty five years) an $8,000,000 original mortgage incurred at the time of conversion (without ever refinancing or expanding the principle). During the twenty five years, we expended $16,000,000 in capital expenditures; and we are one of the lowest cost upscale residences in the region for the quality of life, services and amenities. Our annual maintenance + assessment combined have risen an average 3.5% a year over the life of our co-op history. For comparison purposes, our area’s rent controlled apartments have risen 5.5% per year in the same period. Not bad, own an apartment and have it “rent controlled”!

We have never had a special assessment (e.g.: surprise, unplanned), but we do have a planned assessment every year. Yes, we started at 50 cents a share (40,000 shares) and have grown the assessment at 25 cents to 50 cents a share where now after retirement of the mortgage the assessment is $24 a share. It jumped from $12 a share in the last year of the mortgage to the new value, because we did not lower maintenance, but transferred the income that was in maintenance to retire the mortgage to the assessment stream. (Remember the tax treatment notes earlier.) Yes, we amended the amounts in our monthly statement to shareholders to reflect same.

Why no decrease? The building is aging and our outside engineering firm poses the need for another $15 to $20 million in the next fifteen plus years for capital improvements. Even so, we kept to our norm of about 3.5% increase in costs per year. Has anyone wondered what the long term cost of living index is for the same twenty-five years? It is closer to 3.9%. So our residents are benefitting from long term strategic planning.

And as we have had a long term plan, we don’t whipsaw our shareholders with a 10% increase one year and 2% the next. Our, long term plan and our yearly budget account for keeping the equivalent of nearly two month’s of maintenance in our cash reserve account as a cushion. In addition, we have a multi-million dollar line of credit. But, the line of credit is employed only to pay for capital improvements in anticipation of the yearly receipt of the “regular” capital assessment stream income over the ten months each year. The borrowings of the line of credit are typically paid down to zero by year end, or at most, the first month of the new year. Again, we have unwavering commitment to the “plan”. And, we don’t use the line of credit every year.

Regardless of what folks are recommending, avoid long term borrowing. Once a building borrows without a loan/mortgage retirement plan (long term); I would opine that the building has entered a death spiral. If the building has a loan today, immediately plan to start retiring it and start the annual assessment, if building has not begun so already. Why work for the banks? Work for your owners.

Remember, few building have anyone on the board for an extended period. Typically, boards turn over very quickly and each new regime promises to lower maintenance and avoid assessments; yeah, motherhood and apple pie. It’s fiscal doom. All costs are going up, e.g.: natural gas, salaries, insurance, consumables, services, repairs, water, electrical services, taxes, government fees, security, medical plans, etc. There are no schools for co-op/condo board members. Many writers offer the wrong advice. Most folks have never been in the board of a corporation and thus have no clue as to how to be a board member. But, the first words are always: “We’ll lower maintenance”.

Anyone can be fiscally irresponsible, even the CEO’s of major corporations as evidenced by the debacle in the financial industry over the years 2007 and 2008. Avoid putting one’s property into bankruptcy with good planning and a long term plan that does not change year to year. That’s right, develop a plan and stick to it. One long term plan works forever. But, ya gotta stick to it and not have every new board heave the plan through the window and work via myopic short term planning.

Doesn’t everyone realize that when one purchases an apartment in a co-op, the underlying burden of the mortgage in effect reduces the value of the apartment? Hmmmn one says! OK, let’s go to the blackboard. If a 400 unit building has an $18,000,000 mortgage outstanding, the average apartment has a burden of $45,000 in debt, not taking into account studios (much less, but lesser purchase price) and three bedroom units (analogous, larger and thus larger purchase price). So if one buys a unit for $500,000, one also assumes an additional $45,000 debt (the corporation’s). That’s what co-ops are all about! In effect, the unit is only worth $455,000), but who’s counting? Most shareholders do not.

And let’s see what can happen when a building has an underlying mortgage of $12,000,000 with $11,000,000 principal remaining that the previous boards of director regimes deemed useful in reducing the monthly maintenance burden to shareholders, e.g.: no assessments. So the building now encounters a major hurdle. Because previous regimes performed inadequate capital project replacements and improvements, the building needs another $12,000,000 and it needs it soon, within a few years, not fifteen years.

So the board goes to a friendly lender. In turn, the lender says sure, we can provide a new loan of $23,000,000. But, since there were a substantial number of years on the existing loan, there is a prepayment penalty of $3,000,000. So now, the building has a new mortgage of $23,000,000, but netted only $9,000,000. Why? Repay $11,000,000 principal and pay a penalty of $3,000,000; this equals $14,000,000 out of pocket. And the new lender required that the co-op put $8,000,000 into an escrow account to make sure that the building did not spend the funds on other than capital projects.

So now the co-op is “owned” by the lender, not by the shareholders. But wait! Its worse! The building has a capital forecast that it needs $19,000,000 in capital improvements over the next fifteen years, starting now. Well, they have $8,000,000 in escrow. Great! But where does the co-op obtain the other $11,000,000? The correct response should be via an assessment through a regular yearly program. But the board of directors has declined to impose any assessments. They are so happy that they have $8,000,000 in escrow and can complete the capital expenditures that have been long overdue, that anything beyond the next year or two is out of range. They are blinded by their ill conceived wealth.

Would all not agree that this is short term nearsighted planning at its best (e.g.: worst)? So in a few years, when the $8,000,000 in escrow is exhausted and the loan is not repaid, what’s next? It will be another refinancing, another prepayment penalty, and another escrow account, not to mention the non-productive expenditure of interest expense payments. By the way this vignette is not a fabrication but a true a true story that has emerged from several co-op buildings.

The mantra should be: “Never ever surprise the shareholders and always operate in a fiscally responsible manner”. To do otherwise, is to abrogate fiduciary responsibility, with dire consequences. But who cares? The current owners are happy today, but little do they know. As an aside, I sit on our building’s admissions committee and I am somewhat taken aback by the number, almost 100%, of the buyers who have little knowledge of the financial operation of a co-op. Yet for most, this is one of the biggest financial commitments,

By the way, forget any thought of deriving investment income from capital reserves. No board exercising its fiduciary responsibility properly should ever invest in any instrument other than first rate US government bonds. Yes, low interest, but safety not income is paramount.

Before our original mortgage (yes, never refinanced or expanded) was retired, our assessment program was equivalent to about 8% atop our regular maintenance income. Now with an older building, 40+ years and aging, our assessment is about 17% atop our yearly maintenance income. As asserted, there was no reduction in maintenance.
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Please continue to Part 2 below
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Please begin with Part 1 above
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But let’s do the math. Our building and property have a value of about $120,000,000 as computed from the average share price of recent sales times the number of shares outstanding. We have and have had for a long period of time a recurring yearly assessment program, e.g.; no special assessments, no unplanned assessments) just regular assessments as part of the yearly financial program as noted elsewhere. Yes, again as noted, the assessment amount per share has increased slowly over the years. Today, at our current rate, the annual assessment is but 0.79% of the value of the building. What homeowner (shareholder) should be opposed to that level of spending?

So, the most viable recommendation is to assess each year such that all shareholders are attuned to the need for capital improvements, so that the board of directors can operate in a fiscally responsible manner, e.g.; improving the plant without resorting to surprise assessments or debilitating loans. It is a little like Pavlov’s dog; sorry don’t mean to insult anyone. Train the shareholders, e.g.; assessments are a recurring yearly activity, and they will come when the bell rings. Don’t overlook the fact that by posing the long term need for capital improvements and the need for the underlying funding via assessments, all residents can effectively plan their personal budgets years in advance. If we can do it in our co-op, so can others.

Finally, when the co-op is illiquid and the lending institutions decline to extend any more credit, what’s the draconian course of action? Any thoughts? It may be that the co-op converts to condo and during the course of the conversion each shareholder is then required to pay the underlying burden of the co-op’s loans outstanding and any prepayment penalties. This payoff (principal and penalties) can be made directly by the shareholder; it can be subsumed by the shareholder by adding it to the shareholder’s principal amount in converting from any existing co-op loan to a condo mortgage, or the shareholder can incur a new condo mortgage if the shareholder owned the co-op unit free and clear, save the underlying co-op mortgage burden. Oh and let’s not overlook the fact that in a conversion, there may be a need to create some liquidity for the condo association with cash reserves and a reserve fund (typically neglected).

Had the lenders declined to refinance or extend additional credit to the building with the $11,000,000 principal outstanding, the shareholders would have been faced with a condo conversion cost of $11,000,000 principal + $3,000,000 prepayment penalty + $8,000,000 for a reserve fund for failure to do capital improvements. The total, without legal fees, is $22,000,000. So now explain the shareholders that because they cannot obtain any financing, they need to convert to condo and oh by the way, the average shareholder (there are 450 units) must show up at the closing with $53,000 in cash.

So, one reads this and thinks it’s farfetched. Well, one needs to do some research about the Briarcliff co-op in Cliffside Park, NJ. They planned to convert but never did convert because of some litigious shareholders. But they were facing huge numbers for each shareholder, e.g.: underlying mortgage + purchase of garage space (to generate reserves) plus additional sums for the capital improvements never funded or performed.

These are some tough decisions. Remember emerging from fiscal irresponsibility is never easy; it is painful for all shareholders. The alternative is worse. It could mean the end of the co-op corporation.

Further, short term band aids and workarounds are only advisable if there is an accompanying long term solution. A one time special assessment is ludicrous. Capital improvements are not a one time event. Without a cohesive long term plan, it is doom and gloom.

To avoid the panic and the horror of a special assessment, the board should plan and impose a yearly assessment based on the engineer’s description of the viability of the capital plant along with the engineer’s proposed replacement program and costs. If the plant is aging and it is, the board cannot avoid an assessment if fiduciary responsibility is to be properly discharged.

By the way we have two major meetings a year and workshop meetings every other months. Why? Because we have a plan and we need not resort to firefighting and crisis management. Did I reveal, we are self managed with our own management and superintendent team and work force (porters, maintenance and doormen), though we outsource security and pool operations, along with other technical specialties, e.g.: HVAC maintenance, boiler maintenance, plumbing, electrical work, elevator repairs?

If one heeds some of the thoughts herein and embarks on a new course, Bon Voyage!

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Thank you
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Pets and Patios - GK Aug 23, 2008


We are a pet freindly building, however a shareholder has brought in a dog without requesting permission as stated in our house rules, and she is training it to defecate on the patio of her rear yard, adjacent to the ground level apt she owns. Anyone know if this is Board of Health violation? Owners of units above hers are disgusted and want to know what recourse we have as a Board.

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Wow, there appear to be two GK's here. I'm a different GK, responding to the GK above.

Nip this in the bud. It doesn't need to be a big problem, imho. Sounds like communication is badly needed here; the shareholder needs to be talked to rather than about. Just be very no-nonsense and matter-of-fact. That she has violated house rules gives you some leverage. Notify the management company and have the management company write a polite but firm letter pointing out that she has violated house rules. Furthermore state that there have been complaints about the dog defecating on her patio in view of other shareholders' apartments. Not sure if it's a health violation; call 311 and ask. Certainly if it were on the sidewalk, and she didn't pick it up, she would be violating the law.

Sounds like the shareholder needs to be educated — educated about her responsibilities both as a shareholder and as a dog owner. As a dog owner I'm a bit perplexed: why in the world would she not walk the dog outside (and let him benefit from the ensuing socialization), train him to defecate at the curb (or in the local dog run), pick up after the dog, end of story. Sheesh.

Tell her that house rules mandate that she formally request permission; have her submit a letter; grant her permission to keep the dog; done.

And you might also consider directing her, in a friendly way, over here: http://www.akc.org/events/cgc/index.cfm

You can solve this! Good luck.

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NYSERDA - Gerry Aug 22, 2008


Has anyone used this service lately?

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Our building is in the process of trying to get an energy audit done.

First you need to find an engineering firm to partner up with (go to getenergysmart.org and look under "Multifamily Performance Program for Existing Buildings" for a list of participating firms); then you and the firm you are partnering with need to submit an application (downloadable at getenergysmart.org).

My understanding is that the co-op is expected to pay for half of the audit up front; then, if the building implements strategies/protocols recommended in the resulting report, the co-op will be reimbursed for the balance.

Hope this helps.

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overtime $22k a year! - st Aug 20, 2008


85 units upper west side. this seems extreme. what can we do?

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In our coop for any overtime payments to the super
The super has to present a sign-in sheet listing the hours worked over time and the jobs / projects worked on
Then this sheet is attached to the check request the mngt agent issues to pay the super
Request the same from your mngt company - you need to see:
1) How many hours
2) At what rate
3) What jobs / projects have been completed

Hope this helps

Treasurer

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Indecent Exposure/Need new house rules - BN Aug 20, 2008


In the past few months we have found a)a "roommate" of a shareholder having sex on the common roofdeck at 3 AM with someone other than shareholder after roofdeck curfew of 10 PM (it's over another shareholder's unit) b)another shareholder visible in his underwear with his friend standing stark naked, having a cigaetter in the rear year. Do we need to actually write house rules/prop lease amendments forbidding this behavior? What would we classify it as? Objectionable behavior? Should shareholders who witness this stuff be advised to call the police?

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a thirdsome perhaps?

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It seems to me that shareholders who can make a claim that their "quiet enjoyment" is being interfered with could register a complaint with the management company, who could then take action. If people are on the deck at 3AM, that's a clear violation of house rules, so that should be easy enough to address. Best to have the management company address it, though, so that it doesn't become a conflict between shareholders, or a conflict between the board and shareholders.

As for calling the police, that's kind of a tough one if this is happening on private property, I think.

Good luck!

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Shareholder "Renting" to a Family Member? - newbie Aug 20, 2008


If a coop shareholder is allowing a family member to live in the apartment (while she is not living there) and is charging him "rent" (which she declares as income on her tax return), does this amount to a subletting, for which she must get permission and pay the sublet fee, as the house rules require?

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no . dont let it worry you. get on wiith your life. roommate law = you can do nothing.

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immediate family is harder to make a fuss about. i think coops need to loosen up all these sorts of rules anyhow.

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My parti pris is that boards, or at least some board members, occasionally cross a line between looking out for the best interest of the shareholders and interfering with shareholders. My approach to the situation would be to ask: a) Is the maintenance getting paid on time? b) Is the family member abiding by the house rules? If yes to both of the above, I'm satisfied. The rest doesn't concern me.

Not sure if the roommate law applies here if the shareholder is absent. Even if an immediate family member is occupying the apartment, I think that the primary tenant/shareholder has to be present in order for the roommate to apply. Please correct me if I'm wrong.

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Oops, the above should read: "I think that the primary tenant/shareholder has to be present in order for the roommate law to apply."

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If the name does not appear on the existing lease, it is a sublet.

If they wish to put the name on the lease (shares), they can either gift or sell it, per any applicable proprietary lease and by-laws.

Why anguish?


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sorry - roommate law overrides any name on lease clause. If primary resident is around enough ie they have a presence and have not moved to Alaska, then you can do nada if they have one person in the apt. You can ask for their name and you may not ask any other questions. It is a great law.

question: why cant all coops just be forced to turn into condos so we dont have these petty problems?

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Yes, you are correct. My assumption was that there was no “shareholder” present in the apartment.

= = = = = = = = = =

Yes convert to condo but the shareholders need to absorb the underlying mortgage(s) of the co-op, which in many cases is a horribly outlandish sum due to fiscal mismanagement and fiduciary responsibility. Sorry for being so strident, but this is my personal observation and view.

Go ahead. But do take note.

Take your underlying mortgage and add any prepayment costs; then divide by the number of units in the co-op. This the average sum (plus or minus) that a unit owner must absorb at the time of conversion, not including any other conversion costs and fees. This amount is above any personal mortgage which the shareholder may have outstanding at the time of the conversion.

Example: A building of 400 units has a $20,000,000 mortgage with a $5,000,000 prepayment penalty, if paid down today. This is $25,000,000 must be absorbed by 400 units at an average of $62,500 per unit. (Again not counting conversion fees and not taking into account the difference in the number of shares for a studio vs. multi-bedroom.)

Oh, if the capital reserves have been deferred or underfunded, there may be another financial hit to the converting shareholders, e.g.: $20,000 per unit to create a comfortable capital reserve fund at the time of conversion.

So now we are $62,500 + $20,000 = $82,500 average cost absorption per unit.

Are you ready to write a check for $82,500, or add it to your new mortgage after you convert you co-op loan, or are you prepared to take a loan for $82,500 if there are no encumbrances on your existing unit?

I'm not against conversion, as a matter of fact I am very pro-conversion, as our building is examining the efficacy of "condo conversion" now, but one needs to enter the arena with eyes open.

Why convert?

Our reason is to unlock the vast financial gain shareholders will realize as the real estate market continually depresses co-op unit prices compared to similar units in a condo, because of the overhanging underlying mortgage and the interview / admissions process.

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There are major financial issues in the coop v. condo debate. I realize this but I wonder about what some may consider trivial points and how important they are to coop Shs who are "converted" to condo owners. Examples.

-- The admissions/interview process tells a coop not only how well buyers are to meet financial obligations but also (to a limited degree) how committed and how good a fit they'll be in the coop community. I bet many condo and 1-family home owners would like some further assurance, however limited, about the reasonableness of people who will be their neighbors.

-- Coops have rules that condos don't have. For instance, condos aren't required to have carpets/rugs. Hardwood floors are desirable today, but if you hear high heels, dogs/cats running around, and the sound of every item dropped or dragged across bare wood floors day and night, it can get on your nerves.

-- Condo owners can rent their apts to anyone they want. No admissions/interview process. I used to own a condo and the apt next door was rented. The wife made jewelry at home as a business and the smell of metal and chemicals was awful. The husband was a keyboard player (for weddings/parties, etc.) and he practiced at all hours. He had three keyboards against the wall that adjoined our BR. We asked him to move them to a different spot and he refused. The condo board said there was nothing they could do about it.

These issues again may seem trivial but it's things like this that make enjoyment of your home more difficult, especially in smaller buildings where you see neighbors all the time, where apts are close together or where walls are thin and every sound can be heard. Living in NYC isn't always easy but at least coops have somewhat more control over how easy or difficult it has to be.

Just expressing an opinion.

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Yes condo owners can rent, but limitations can be set, e.g.: one must own their apartment for one year before renting. And there is a rental fee imposed by the condo association. Also, no more than nn% of the units can be rented at any one time. Limits can be set, e.g.: no more than a two year rental without renewals.

Carpets can be required as we move the exiting proprietary lease ands bylaws to a condo association, per our attorney. So, the carpet argument may not be entirely valid, unless one has more information.

Condo purchaser qualification vs. co-op purchaser qualification can be a bit challenging. Out thought is that condo prices are typically substantially higher than the co-op prices. Thus, those who can pay outright have the wherewithal to pay maintenance and taxes. Those taking condo mortgages will be screened by the banks.

As for noise and objectionable conduct or odors, that’s a good one, and I’ll ask our attorney.

Thanks much.

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Lots of good points here. A few more:

(1) During the conversion, everyone who has a coop mortgage will have to pay it off and get a condo mortgage. This will typically cost each shareholder several thousand dollars and considerable headaches.

(2) There is no Warranty of Habitability in a condo. Many condo owners have found this out to their dismay.

(3) Given the relaxed lending standards of the subprime mortgage crisis, and the fact that a condo board has only a right of first refusal on a sale, the chances of an owner defaulting on monthly charges is higher in a condo than in a co-op.

(4) At least one source I've read claims that a coop-to-condo conversion must be treated as a sale of shares followed by the purchase of a condo. This means that each shareholder must immediately pay taxes on the capital gains realized by this "sale." Of course this cuts down on the gains taxes when the converted condo is eventually sold, but the up-front payment is still pretty onerous.

(5) Recent studies indicate that condos sell for 10 to 15% more than comparable condos, so it's not like anyone is going to double the value of their apartment by converting.

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If Paragraph 14 of your Proprietary Lease lists the permitted residents as "Lessee AND ...," then a family member is NOT permitted to live in the apartment in the absence of the shareholder(s). This has nothing to do with the Roommate Law, which only applies when the shareholder is concurrently occupying the apartment.

It's up to your Board how strictly you want to enforce this. Many people feel this restriction is hair-splitting and annoying, and in many cases, it is. However, the danger is that if you don't enforce the rule now, you may lose the right to enforce it in the future. What will you do when a shareholder's obnoxious and financially irresponsible brother moves into the apartment?

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Dusting of Compactors - Pres Aug 18, 2008


Has anyone experienced exterminating dusting of their compactors?

Pres

Any input would be great.

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We do it approx. once a year. Seems effective, We do one chute at a time because we close the chute for 24 hours after dusting.

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We have a washing and disinfectant system for our twenty story high compactor shaft.

We lock the compactor room hatches one each floor and drop the built-in washing system from the roof level downward; then its retracted onto its reel This occurs about once a quarter.



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RitaM

How much did you pay for the built in washing system? And if possible, who was the vendor?

Thanks
Pres

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When/How New Prop Law Amends Take Effect - NB Aug 15, 2008


We're holding a special meeting to amend by laws. How do we record the amendments that get required majority votes and when do they take effect? Is public notice needed? Attorney General Office Filing?

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Your counsel will do the filings if necessary. However, the way to handle amendments to the PL and By-laws is as follows:

1. If the proposed amendment passes, the counsel will do a formal amendment document that will be added to the PL.

2. A general mailing of the amendment is done to all the existing shareholders of the corporation stating the amendment has been approved by the shareholders and it will also announce the effective date.

3. The conversion plan and all the amendments must be surrendered by a shareholder who is selling the unit to a prospective buyers. If not, it's up to the propective buyer and/or buyer's attorney to find out what amendments exist to the PL and By-laws that will modify the speciment included in the conversion plan. This is the due diligence that should be exercised by the prospective buyer and its attorney. It's done by contacting the co-op counsel and/or the management office to ensure that the seller provided all the documentation.

4. Every PL issued after the amendment will include a copy of the amendment at closing. In other words, shareholders at the time of the amendment and future shareholders will have the amendment as part of their PL.

AdC

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Thanks for the great information. Can a vote on one particular amendment be carried out by a mail-in vote sent to all shareholders in lieu of calling a special meeting? We have many shareholders who seem to prefer not having to attend meetings and would like to participate in voting by mail. Our prop lease/by-laws don't address handling issues usually voted on at special meetings by mail.

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I would ask your counsel as to the proper way to do it. You may have a ballot and proxy; after all, this is the way large corporations vote on corporate proposals. You submit a proxy containing pro, con and abstain boxes for directors and officers as well as proposals.

AdC

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