Habitat Archive Enthusiast
Search "commercial income"
Thu Apr 22, 2004 8:59PM
69.142.194.6

Something here for you.

TITLE Seeing 20/20 on 80/20
DESCRIPTION Does section 216 of the tax code financially hamstring co-ops?
TOPIC Taxes
AUTHOR Ford, Ruth
MAGAZINE ISSUE April 2003 - Number 189
ARTICLE TYPE Feature
PAGE # 40-47
ABSTRACT The 80/20 tax code requirement states co-ops cannot generate more than 20 percent of its income from non-shareholders and still be considered a cooperative. This has led to "good" and "bad" income. Techniques for maximizing income while staying within the 80/20 guidelines are discussed.

If you are on an accrual basis, it's money earned, not collected. If you are on a cash basis, it's money collected. I don't think you can forego income. It is taxable, non-taxable, or deferred. I think rental income is taxable. And if the establishment is reporting it as rent expense, then somebody is on the income side. Hence, the concept of cond-op.

While the rental income is keeping the maintenance charge low, it is foregoing the deductibility of the maintenance charge (portion of).

in my old building. The way we got around it was when we signed new leases we took 1 huge prepayment of rent in January then redid the books of the coop to a fiscal year starting February 1. No one paid maintenance for the month of January. This way we only had 1, 1 month year with the 80-20 problem but with the new fiscal year started the income stream for the store was in line because so much rent had been pre paid

Speak with your professional accountant as to what you can do to boost your 80% revenue stream from shareholders so that your 20% is not reached. There are strategies, but you need explore them with your professional. One that comes to mind is the use of master meter of electrical services with re-invoicing of services to shareholders and/or providing cable / internet services to residents and rebilling them, etc. Again, you are boosting your operating budget by the service being absorbed by the co-op, then billing shareholders for their use to incrase your 80% good revenue while reducing your 20% from bad income.

So, your best bet is a good discussion with the accountant and building some concrete strategies with your board.

AdC

There are many options, but ignorance to the potential income should not be one of them. Your accountant can provide many alternatives for you. I have a few of my buildings with this challenge in the past and most of the time I raised maintenance proportionately and then returned that money (in your case 20K) in the form of services such as providing free cable, or laundry, or a gym, the possibilities are endless. I believe your coop lost some good opportunity in the past, but it is not too late to regain it.

~AR

I thought the co-op has the right to foreclose on a unit when the shareholder doesn't pay the maintenance. The process probably will take "forever", but I am sure the conversion process (co-op to condo) will take just as long.

No anons, anon

ty Bobby

so then, what is the co-op's recourse?

Just correcting the heading

put crazy glue insire the lock. that will take care of it. you didnt hear this from me.

Thanks :)

Janies: You said your 20-unit condo has 7 doorways with 3 units per doorway. It sounds like you have 7 attached bldgs ("townhouses"?) with 3 units in each bldg, or is your condo 1 basic bldg with a common foyer/lobby with 7 doorways that go to areas that have 3 units in each area?

If you have 7 attached bldgs, does each one have a basement?That implies that owners in each bldg are the only ones who access their basement. If so, I think they can put a lock on their basement door (if it's not a fire code issue). If all 20 owners have access to the same 1 basement, no owner has no right to put a lock on that basement door.

You/your condo attorney should check governing documents to see if the basement(s) are part of unit space, "limited common space" or common space. This will define what rights your owners have regarding the basement.

You said an owner put a lock on "the door to the basement". Did he put it on a door that goes DOWN to the basement, and is there a door IN the basement that goes to the outside of the bldg or to an area that gets you outside?

If the basement offers a way out of the bldg, a lock on the door (whether the door goes to, or is in, the basement) is a fire code issue. You can't lock any door that people can use to get out of the bldg quickly in an emergency.

Re: the owner who never gets board approval on anything and does what he wants, he doesn't (as you wrote) have "a hard time remembering he lives in a condo." He knows darn well where he lives. He's one of those owners you'll find in all coops/condos who thinks rules don't apply to him.

Don't let him get away with things he should have gotten approval for but didn't and hope it won't happen again. It will, if you let it. Set him straight now and you'll save yourself and your board a lot of time, energy, aggravation, and maybe money. I know from whence I speak, and I know a lot of other posters here share my experience on this.

Being on a board is an ongoing learning experience. Getting owners to understand that they're part of a community is an ongoing training experience. Some owners were renters until now. Some come from their parents' home and never had to do, fix or be responsibile for anything. Some have things explained 50 times but never get it. Some are apathetic if boards are unresponsive or too controlling. Some (like the owner you have, Janies) are self-serving pains around whom the world is supposed to revolve. These last are the worst. For them, rules, etc. have no meaning, and in their eyes, the board is invisible. Talk about "transparency".

But let's give thanks for those owners who send in sublet renewals on time, put recyclables in the right place, call mgmt if they want to do something but aren't sure if it's allowed, put carpeting/rugs on their floors so they don't drive the people below crazy, come to the annual meeting -and may even thank a board member for his hard work and for everything he's doing for the property!

What keeps a good board member going? Yes, wanting to make life better in their coop/condo - and that dear minority of owners who unfailingly make being on the board easier than we expect it to be. End of my sermon. :-)

See you in three weeks,folks. Leaving on vacation tonight.

Thanks so much. Your description of the whole scenario is right on target. The basement is common area. I think there is a fire code issue too. Have forwarded this problem to our lawyer.

Speak with your counsel immediately. (1) If the re-sale is from an individual shareholder into a sponsor, most likely the process cannot reverse the condition of the shares, i.e., the shares should not go back to the "unassigned pool" for future resale or subletting. (2) The admissions committee should say NO to the sale.

If you are talking about a sponsor selling to an investor, then your sale can go through without you saying much. However, your counsel must be involved in the transaction for the co-op.

AdC

The only legal way to enact a flip tax is by amending the Proprietary Lease. It typically requires a majority of all outstanding shares to pass it but some buildings require a super-majority.

Your coop attorney should check your governing documents to see what your building requires, and you should NOT proceed with trying to enact it without the help of your attorney.

You have to decide what type of flip tax you want. It can be per-share, flat fee, % of sale price, % of net profit, or a combination of types. The type may make a difference. For ex, Shs may vote yes if it's per-share but vote no if it's a % of the sale price and leaves open the possibility that the board can raise the % at any time in the future.

You have to plan carefully and do a good "selling" job to all your Shs to convince them of the benefits of a flip tax. Check Habitat and The Cooperator for articles on flip tax - also the Council for NY Cooperatives & Condominiums (www.cnyc.com) <-- they have a good article explaining the history of the flip tax, the types, how to "sell" it, etc.

Our mistake was relying on a "super majority" rather than a simple majority of 51% or more of the shareholders. The flip tax did not pass. Yes I believe we do need to change the proprietary lease. Do you need shareholders' approval to change the proprietary lease or not?

Yes, V, you must get the approval of shareholders to change your proprietary lease. The terms for doings so are written inside it. Or you can ask your corporate counsel.

Approximately one-third of the shareholders did not vote either way on the flip tax. Any ideas on how to get them to vote in the future?

In my opinion, flip tax is indicative that the co-op funds may have been wasted at some point in time and a flip tax was needed to dig the co-op out of a hole. It is unfair to those who are living there already because those who have recently sold escaped the flip tax. I feel that if a flip tax is absolutely necessary, it should be assessed upon future purchasers who later sell, not current owners. Also, I feel that flip tax has a negative impact on sales value. Flip tax is too much money to "cough up" to a place that I will no longer live.

Assess on a yearly basis and everyone who owns shares of an apartment pays for current and future capital improvements. After all today's capital improvements may be attributed to be the "legacy" of those who sold before.

If reserve funds are important in sales, then even if shareholders do not partake of future improvements, they are partakers of the "attrative" value of its reserve funds thanks to everyone's contribution to the "offertory box."

Just like you, I am not a fan of flip taxes. I would only impose it in those cases where people flip a unit in less than 2 years in a high market.

AdC

Ah, besides funding the building, flip tax is to prevent investment flippers. Ok, then flip tax can be assessed on a proration basis (ie sales on 1 year ownership 3%, on 2 years 2%, on 3 years 1%, thereafter 0%). And, in most likely case, monthly maintenance would have increased to continue to support the co-operative. Maintence charge is for the purpose of paying current and reserving for future expenditures. Lack of budgeting know-how and money squandering is mismanagement. Anyway ,I still feel that flip tax is a farse.

Flip taxes have never been my cup of tea. Perhaps for certain buildings and real estate markets it may be fine, but not for others. The "cookie cutter" mentality should be broken and adopt what makes sense to your particular building and for the particular moment in history.

For example: (1) A building with a high sponsor representation should not have flip taxes. Who do you support? The sponsor. Assessments would be the logical way to go in order to have the sponsor pay too. However, board must check their by-laws to find out if they have the right to assess unilateraly or if they need the sponsor's blessing.

(2) Apartmsnt buildings with small number of sales a year should not have a flip tax. Why? What is the money that you expect to collect that will add significantly to your coffers.

(3) Bad markets - Rethinking of a flip tax becomes mandatory.

To call shareholders greedy for not instituting a flip tax is absolutely ridiculous. If you were to assess, everyone contributes and those who flip will surely will pay for what will come in the future.

Finally, assessments and flip taxes are negotiated among sellers and buyers. A buyer may opt to pay for remaining assessments or demand from the buyer to pay depending again on the market. The same goes for flip taxes - who pays is subordinated to how much you want an apartment or how much you want to sell.

So, a free market mentality is important to preserve, but at the same time re-think what makes sense for the common good of an entire building.

AdC

AdC, even a small number of sales per year in a smaller (45 unit) building can have significant impact, especially when the flip tax is a percentage of the sale price and prices are rising.

But, I am not convinced. I believe in the system of paying for what you consume, i.e., an assessment is healthier as it makes shareholders partakers of the improvements and beneficiaries of a stronger reserve if this is part of the issue.

We have sublet fees, but in reality have been used to subsidize maintenance. Then, the problem becomes for the shareholders who remain a two way street: low maintenance due to higher # of sublets as well as problems created with banks and type of perception on the building, or higher maintenance bu with a stable population of residents with better appreciation for their own property. (Note, perhaps at times - as not all renters are inconsiderate to property or rules)

As I mentioned, the cookie mentality does not fit all. Use the best business judgment when trying to institute a flip tax.

In your case of 45 units where 2 only sell a year, and depending on the price demanded by the unit and % used, to raise $10,000 or $20,000 may mean so much to your reserves in a good year and $7,000 the next year. It is just like interests in a bank account. Not a reliable source to make a hugh impact. In fact Ted,NJ's co-op has assessments every year as part of their strategy and everyone boasts of how well his building is doing. This is call commitment to a property and to the place to call HOME!

AdC

You're right that a cookie-cutter approach will never work.

Except when making cookies. : )

Hi, AdC,

Don't make the mistake of thinking that income from flip taxes is expected or part of the budget. In fact, no CPA will permit you to include flip tax revenues in a projected budget (because doing so is prohibited by generally accepted accounting practices).

Instead, think of flip tax revenue as extra money that can go to reducing the amount shareholders have to be charged for a new roof/boiler/elevator.

As for other comments about the need for a flip tax, I think that many people misunderstand how some co-ops (and mine) come to have one.

Our co-op had no reserves. Zero reserves hurts sales. Zero reserves hurt the corporation. Zero reserves leaves the shareholders to open their checkbooks when capital improvements are needed. So the board said, We need reserves!

The board explained that we can either pay a little at a time through a maintenance increase, or we can have sellers pay a portion of their selling price to the corporation. (Think of it as a way for the co-op to get back a little bit of what the co-op did to improve the building while the shareholder was a resident).

Our shareholders opted for a flip tax. As a former treasurer, I'd rather have the income as maintenance because it's constant and it's part of the budget. But the shareholders spoke, and the board listened.

Finally, for those who are opposed to a flip tax because they think it leads to mismanagement: This kind of argument is a red herring. If your business is being mismanaged, it's not because there's a flip tax. (Enron didn't go down in flames because it was trading in energy futures; it went down because it did so corruptly and left lots of tracks.)

If you think there's mismanagement on your board, run for office!

Hey Steve,

You say, "Finally, for those who are opposed to a flip tax because they think it leads to mismanagement: This kind of argument is a red herring. If your business is being mismanaged, it's not because there's a flip tax. (Enron didn't go down in flames because it was trading in energy futures; it went down because it did so corruptly and left lots of tracks."

You misunderstood, flip tax is a result of mismanagement.

My statement of not "supposed to be" reliable source of income was taken out of context, since I established a comparison between "interest rates" and "flip taxes" are ot being "reliable."

However, your accountant has to account for monies that flow in and out of your operating account into reserves, etc by way of your income statement.

Your statement, "Instead, think of flip tax revenue as extra money that can go to reducing the amount shareholders have to be charged for a new roof/boiler/elevator" is not truly accurate either. The money that you receive through flip tax is accounted by way of your income statement as part of a "flip tax line item." The surplus in your income statement is then converted to "Reserves" for your "Capital Expenses."

However, should your taxes be higher than expected or your oerating expenses suffer an unexpected increase, your "reserves" need to be move to "patch the hole." Then, it's up to the board to determine if to access for the deficit or just use the reserves without inconveniencing your shareholders.

And as Lily Tomblin used to say (Watch out!, I'm dating myself), THIS IS THE TRUTH, PRUURRR!

AdC

Hi, Anon 7:58,

I don't understand why a "flip tax is a result of mismanagement."

This seems to be the syllogism you're using: Flip taxes are enacted by co-ops. Some co-ops are mismanaged. Therefore, flip taxes cause mismanagement.

Mismanagement comes from all sorts of causes. Poorly trained board members, inadequate supervision of staff, shareholders who refrain from their oversight responsibilities.

Income does not cause mismanagement. That's not to say that people won't be tempted to dip into a pile of cash. But notice the difference: money (whether from the laundry machines, insurance settlements or a flip tax) is one means to mismanagement. Money does not cause mismanagement. It's just a darned good incentive for the unscrupulous.

Can you explain why you find a flip tax to be so bothersome? Not on subjective grounds -- no one *likes* paying more, even if it's for a new sidewalk that benefits everyone. I'm looking for an objective reason to back up your claim.

Personally, I'd be happy to do away with the flip tax in my building if we could have a higher maintenance fee. After all, our maintenance fees are in the lower third of maintenance rates for our borough, and just at the average rate for our neighborhood (which likewise is lower than the average).

Buildings on Park Avenue with wealthy shareholders can afford to charge high maintenance fees to cover all their costs AND to build healthy reserves; other buildings may enance a perpetual assessment to do the same.

Any way you look at it, X amount of revenue has to come in. Whether the shareholders want it to come from 1 source or 7 sources doesn't reflect on the board's quality or ability. (In fact, if you ask financial people -- of which I am not one -- most would tell you that having a broad base of income is safer than having a narrow base, such as relying only on maintenance.)

Money may be the root of all evil, but it takes corrupt people to mismanage it.

Hi, AdC,

Thanks for the thoughtful response.

I certainly didn't mean to take your comment about a reliabe source of income out of context. My apologies.

My point was that flip tax income cannot be used in income projections (i.e. the budget). Yes, the accountant records flip tax income, but only after the fact. That's what you're referring to (the income statement). The budget, of course, attempts to foresee the future, and the GAAP prohibit using an income source as capricious as flip taxes in a corporation's planning.

You point out: "The money that you receive through flip tax is accounted by way of your income statement as part of a 'flip tax line item.' The surplus in your income statement is then converted to 'Reserves' for your 'Capital Expenses.' "

That's what I was trying to say. Money from the flip tax comes in, is assigned a category by the accountant (and accountants do love categories), and is placed in the reserves account. I could have been clearer: The amendment to the proprietary lease that approves the flip tax can require that flip tax income be used only for capital improvement (as it is in my building).

"However, should your taxes be higher than expected or your oerating expenses suffer an unexpected increase, your 'reserves' need to be move to 'patch the hole.' Then, it's up to the board to determine if to access for the deficit or just use the reserves without inconveniencing your shareholders."

Yes, exactly! The higher the reserves, of course, the less likely shareholders will have to be bothered by yet another dreaded assessment. Which is why our shareholders are pleased to have a healthy reserves account -- funded by their flip tax.

"And as Lily Tomlin used to say (Watch out!, I'm dating myself), THIS IS THE TRUTH, PRUURRR!"

She's a national treasure!

However, the bottomline here is, your philosophy is different from mine. How we raise reserves is seen in two different perspectives.

I'm glad you defend flip taxes. Someone may find it beneficial. To me, I only see flip taxes as a contribution by those who flip, i.e., investors who only want to reap a gain in 3mo to 24 months.

As I reiterated, every board must do an analysis of their situation and use whatever FITS their philosophy and builidng situation. To make converts of one religion will take the reachness away of dialog.

Thank you for enlightening those who may have followed the exchange.

AdC

I believe in your premise that flip taxes should be used for reserves and not for current expenses - unfortunately our coop depends on the flip tax for maintenance expenses -but of course we have major problems regarding where our money goes - However, if you have already received income during the budget period from flip taxes - how can you not include it in the budget since it is income to the corporation - the problem is to protect this source of income and make sure it goes to reserves - and in our small coop it is a great source of income because so many many shareholders move each year - but of course that is because we have major increases and assessments each year and nothing goes toward the building

Hi, J,

Thanks for your comments. I'll respond to them as best I can.

> unfortunately our coop depends on the flip tax for maintenance expenses

It's awfully easy for that to happen, especially when maintenance fees are too low to support the co-op's entire costs. (I'm assuming your co-op is run on the up-and-up.)

In our co-op, the resolution that shareholders passed to approve the flip tax requires that flip tax income be used exclusively for capital improvements.

(As an aside, if you live in Manhattan and want to find out if your maintenance is high or low, search in the field at the top of this screen for "maint fee comps" and open the message dated Friday, April 13.)

> -but of course we have major problems regarding where our money goes -

I'll take your word for that.

> However, if you have already received income during the budget period from flip taxes - how can you not include it in the budget since it is income to the corporation

The reason is in terminology.

Let's say your fiscal year is the calendar year. Around November, then, you'll be preparing your 2008 budget of expected income and expenses. Your accountant will ask you to predict your maintenance income and fuel costs, but he/she will not allow you to include your predicted flip tax income. Your budget is then completed and approved in, say, December 2007, before 2008 begins.

When flip tax income arrives in 2008, it doesn't go in the budget because the budget is already final. (It's not a living document: once it's approved, in the previous year, you don't change it. You may, of course, make adjustments in spending based on changes that happen in 2008. But the budget itself doesn't change.)

The revenue shows up on your income statement, which your accountant will prepare in January 2009.

In other words, flip tax income shows up AFTER it is received. Income from maintenance, the laundry room, storage cages and the like are predicted BEFORE it is received.

Remember, a budget is a prediction. An income statement reflects fact.

> - the problem is to protect this source of income and make sure it goes to reserves - and in our small coop it is a great source of income because so many many shareholders move each year - but of course that is because we have major increases and assessments each year and nothing goes toward the building

That sounds like a problem. If you're increasing the maintenance (I think that's what you're referring to) and implementing assessments each year and still "nothing goes toward the building," I assume that all that revenue goes to paying your bills. Either your expenses need to be reined in or, if they are already, you need more income.

(This idea that money can always be cut and that any increase in income means skimming or profiteering is going on is the same reason the U.S. won't pay for poor children's health care and why New Orleans is still an utter mess. The truth is that if you want things improved, you have to pay for them.
(Of course, some organizations are run by the unscrupulous. Enron comes to mind.)

Oops! The search field is on the main Board Talk page, not the message page. Sorry for the confusion.

How large is your co-op (how many units)?
Where is it located (Midtown? UWS? DUMBO? LIC?)
How old is the building?
How many staff do you have?
What's the "average" maintenance fee?

If you can supply this info, we might have a better snapshot of your problem....

RLM

"Flip tax is a RESULT of mismanagement"?

I disagree strongly.

Each co-op has highly individual problems. Some are rich with only 8 units and 10 staff; others are poor with 45 units and 1 staff.

Beginnings are critical. If the building was in good financial shape and had a motivated sponsor, it's probably in great shape now; if it was financial tenuous and had a sponsor and new Shareholders treading water, it's probably still a bit shaky.

Maybe Shareholders in YOUR area can afford $5000 per month average maintenance fees; ours won't support that much (thank the heavens!) - and maybe YOUR building is newer and requires less work to keep it running (unlike our 100-year-old beauty). Maybe you even have commercial space which supplements your "good" income; we're zoned so we can't have ANY.

Generalizations such as yours are counter-productive and serve only to make newbie Board Members (and even veterans) feel badly about their own co-op.

But maybe that's why you chose to remain "anonymous"?

- RLM

In a way, flip taxes are similar to capital gains taxes.

You buy shares, you sell them. When you sell, you pay a percentage of the sale price (or the profit, or however your co-op has arranged it).

Essentially, the seller makes a profit -- so why shouldn't the co-op benefit, especially if it puts the funds into capital improvements?

Wish "regular" businesses would do the same, rather than throwing it at investors to shore up the company's value on the stock market.

RLM,

You say, ""Flip tax is a RESULT of mismanagement"?

I disagree strongly.

Each co-op has highly individual problems. Some are rich with only 8 units and 10 staff; others are poor with 45 units and 1 staff."

Uh, overstaffing and understaffing IS mismanagement. I know you were giving an example, but nevertheless, it is still mismanagement.

Can you please give me a more specific link to the Comparison of Maintenance Charge you referrred to.

I look on the Board Talk page and did not see it.

Thanks for your help

Howard

Please, give me a break. To compare flip taxes to capital gains is rather ridiculous. Flip taxes may have to be adjusted according to market. Sometimes, a shareholder may be losing money depending on market. So, because we are living at the end of an upcoming market that have lasted seven years (2000 to 2007) in some areas, don't tell me that everyone is every selling is making money.

Again, I repeat my sentence, "don't try to make converts of one religion." Co-ops should be free to adopt the BEST method under their BEST BUSINESS JUDGMENT to increase their reserves. To use FLIP TAX, ASSESSMENT or other sorts of FEES to increase your revenue is a matter of analyzing and adoptng what is good for the co-op and its shareholders.

AdC

Hi, Lefty,

I'll do you one better: Here's my post from April on maintenance fee comps in Manhattan. (If you want to find the original, I typed in the search field "maint fee comps." That brought up three posts. Select the one from April 13, 2007.)

The references are to the original poster's question and the data she supplied.

Cheers!

* * * * * * * * *

Let me discuss [the poster's] original question first: Is $6.40 per share too high for a maintenance fee? It's impossible to give an answer to that question. Many people assume that one share in your building is equal to one share in my building, and equal to one share in every other co-op in the five boroughs.

It's not. Thanks to the wisdom of the lawyers who draw up co-op papers and the staff of the attorney general's office, which blesses those papers, the number of shares in a co-op corporation is arbitrary. For example, your 86-unit co-op has 19,760 shares. My co-op has 43 units and about 26,000 shares. So you can see that the price per share cannot be used for comparisons among co-ops.

So how do we measure one to another?

The way I do it -- and I'm no statistician, just a board treasurer who got tired of the complaints about our maintenance fee being "the highest in Manhattan" -- is to look at the monthly maintenance paid (in dollars -- NOT in shares) and divide it by the size of the apartment (in square feet). So, for example, if Alex pays $1200 a month in maintenance for an apartment that's 900 square feet, she's paying $1.50 per square foot.

1200 / 900 = 1.5

The weakness of this comparison is that it does not take into account tangibles (doorman or not, health club or not, basement apt vs penthouse) or intangibles (grand or dingy lobby, pre-war or modern, how recent the renovation, "fixer-upper" vs "move in tomorrow"). The strength is that it's quick and easy, especially because figuring out which building has which amenities is a challenge.

I decided to find out the average maintenance price in Manhattan co-ops by neighborhood. My source is a feature in the Sunday Real Estate section of The New York Times. If you're familiar with the paper, you've seen the "Sales Across the Region" grid. The top row always shows Manhattan sales. For 24 months (October 17, 2004, through October 15, 2006) I recorded every Manhattan co-op sale (not cond-op or anything else) by area (square footage), monthly maintenance, and neighborhood.

Here are the results. They include only those neighborhoods with at least five sales during that period in The Times. From most expensive co-op neighborhood to least, by square feet:

Midtown East: $1.42 per square foot
Murray Hill $1.40
Upper East Side: $1.36
Midtown West: $1.33
Chelsea: $1.25
Greenwich Village: $1.17
Grammercy Park: $1.07
East Village: $1.07 (tie)
Upper West Side*: $0.98
SoHo: $0.97
TriBeCa: $0.87
Hudson Heights: $0.86
Morningside Heights: $0.86 (tie)
Hamilton Heights: $0.75
Inwood: $0.73
Washington Heights: $0.70
Harlem: $0.51

*I included "West Side" sales with "Upper West Side."

So to answer your question (finally!), is your maintenance too high? Let's take a look.

You own 324 shares at $6.24 per share. That's $2022 monthly maintenance (rounded up). Your apartment's size is 1650 square feet.

2022 / 1650 = $1.225 (call it $1.23) per square foot

You live on the Upper West Side, where the average monthly maintenance is about 98 cents per square foot. So it's quite a bit higher than the average for your neighborhood.

But before you boil over, let's look at your entire building. It has 19,760 shares at $6.24 each, for a total monthly rent roll (that's the legal term, since in a co-op we rent from the corporation) of $123,302.40. You point out that according to Property Shark, the total residential area in the building is 121,313 square feet.

123,302.40 / 121,313 = $1.016 (call it $1.02) per square foot

That's four cents per square foot above your neighborhood average. (Or, to be more precise, 3.6 cents above.) So I would say that your building is neither too high nor too low, but basically spot-on.

Unfortunately for you, you live an apartment that has disproportionately more shares than your building's average. That means there's some lucky shareholder in your building who has many fewer shares! How are shares allocated? That's another story -- but in short, it's arbitrary, based on such things as the view, the number of bathrooms and bedroom, and so forth.

(Let me add that in the case of my figure for the UWS average, it's based on 57 sales. The most expensive I found on the UWS and West Side was $1.70 per square foot. I don't write down the addresses, but if you're curious look in The Times of Feb. 12, 2006. The least expensive was 57 cents, in The Times of one week earlier.)

If hope you find this useful. It sure taught me a lot about maintenance fees in the city.

In case you're wondering, I discovered that my building does not, as one shareholder put it, have the most expensive fee in Manhattan. It's 88 cents per square foot, which puts us in the middle third, in between SoHo and TriBeCa.

Cheers!
steve

Wow!
Thanks Steve.
You are a gentleman and I would like you to be my guest for lunch.

My e:mail is Exitement@aol.com

Howard

I'm glad you find the info helpful! And thanks for the lunch offer. I'm getting ready to leave on a nice vacation, so I'll take a rain check. Enjoy your summer!

The answer to your questions is very simple - money disappears - not how many staff, etc - money is taken out of our disbursement ledger stating that it is paying for xxxx - but that is not true - and I am not dealing with petty cash - try $100,000+ a year, and in addition unfortunately capital improvements somehow cost double what the original contract was and that was more than it should have -

There are plenty of ways to raise money in a co-op. Just because there's a flip tax, it doesn't mean that funds are poorly managed.

In my building, for example, the shareholders want the lowest maintenance we can get away with. One way to keep monthly maintenance low is to impose an assessment -- one that's open-ended, so it doesn't terminate. Looks good on paper ("Hey, that's low maintenance!") but it's another fee you have to pay.

Another way is a flip tax.

Alternatively, we could eliminate the flip tax and increase the maintenance to make up the difference.

Just like you, a corporation needs money to pay its bill. Think of income from the maintenance fee as your salary from a regular job. Think of flip tax income as freelance work on the side. Together, you have enough to pay your bills, and maybe some to save for retirement. But if you want to stop freelancing, you have to ask for a raise or cut back on retirement savings.

One reason our shareholders passed a flip tax - and then passed an increase in its amount a year later -- was the board's selling point. They explained that when the shareholders kick in to improve the building (new lobby, new boiler, adding a porter), sellers benefit the most because their apartments are worth more when they sell.

But the shareholders who stay don't see a financial benefit (just the practical one).

With a flip tax, however, even the shareholders who don't move away for decades can realize the financial benefit of paying for improvements.

Sure, the flip tax can be a drag on sales. So can the purchase process in New York City. But if you're in a well-run building, and especially if you're in Manhattan, the only drag on sales will be from the next great depression. Even after 9/11, apartment prices kept going up.

Why have flip tax when you have service contracts, warranties, and insurance? All budgetable.

I know that there's insurance for "business disruption". If a boiler breaks down or if there's a blackout, would these be categorized as business disruption? After all, a co-op is deemed to be in the business of habitability.

"Why have flip tax when you have service contracts, warranties, and insurance? All budgetable."

Yes, Anonymous, those are all budgetable. But if your budget equals income, then you cannot budget for capital improvements without A) raiding the reserves (which is OK, but a drain nonetheless) or B) imposing an assessment.

Flip tax income, on the other hand, is NOT included in the budget (under generally accepted accounting practices). Your accountant will not permit it. Therefore, income from flip taxes is extra money that can be applied to a new boiler (or whatever) without having to raise the money from shareholders.

"I know that there's insurance for "business disruption". If a boiler breaks down or if there's a blackout, would these be categorized as business disruption?"

Well, if the boiler breaks it won't be covered by insurance. Maybe the problems it causes will be, but boilers wear out. And then you have to buy a new one.

And even if you found a way to get your insurance agent to cover the cost, your rates will go way up next year. Or the agent will drop you because you're a high risk. And that, as your high school guidance counselor said, goes on your permanent record: other insurance companies can find out that info. So it's a long-term expense for the co-op.

(Insurance for a business is just like insurance for a car or the policy that covers your camera. Every time you get in an accident or lose your camera and file a claim, your rates go up. Do it often enough, your insurer will drop you. Remember, insurance agents have to make a profit too.)

But a co-op also must meet rising financial obligations. Shs will get tired of the building always going into their pockets for extra money. There have to be other ways to generate revenue other than maintenance increases and assessments. You have fund raising and flip taxes. Any other ways to generate funds?

I wonder if donations is an option. Is there a tax deduction classified as a charitable contribution? Because, after all, a co-op is a not-for-profit corporation.

I was told by the Board President that since we were not a charity, no donations could be tax deductible. But it is a good question and she is not a tax expert.

I agree with your assessment
the co-op or condo appreciated and made it possible for the enormous profit you as a seller are about to take. Have your buyer pay the flip tax because they will benefit from it more than you will.

In my building all the original buyers paid the flip tax, we didn't have a choice either. Why should we pay another flip tax and then leave the building? Let the new owners pay the flip tax just as we did.

V,

Can flip tax be transferred to a buyer? I didn't know that. I guess that will work at a sought after building or neighborhood.

Darius

In our co-op, the initial buyers all paid transfer fees. So they put language in the proprietary lease starting the the flip tax would be either paid by the buyer or split between buyer and seller.

You gotta sell it, baby!

Tell them why it benefits them! (You know the answer to that, right?) (If not, here it is: Shareholders who stay for years and years to come will see a financial benefit to the money they put into the building for a new boiler, updated lobby etc. How? When the guy down the hall sells his apartment after the new boiler and updated lobby are in, he will get more money for his apartment. Why shouldn't you -- a shareholder who helped pay for the boiler -- get some money back? Of course, that's money that goes into co-op coffers, not individuals', and that means lower maintenance increases in the future.)

Remember, the alternative to paying the co-op's bills with flip tax income is to pay it with higher maintenance fees.

You would be surprised at the responses I get when I ask about the flip tax, I get one lame excuse after another:

They say: They don't want a flip tax because they want to control where the money is going. I say: You don't control where the money goes now! What will change?

They say: They need ALL their profit for the next residence. I say: How about being grateful for the profit on this co-op's sale to be able to purchase the next residence. How about a "goodbye and thanks" present?

These greedy and selfish ones won't budge an inch! Any ideas on how to sell the flip tax to the apathetic and non caring? Threats of maintenance increases won't scare these folks. They just wanna sell and get out!

Good questions, V.

"They say: They don't want a flip tax because they want to control where the money is going. I say: You don't control where the money goes now! What will change?"

You're exactly right. That response is not about a flip tax, but about controlling expenditures, which, as you point out, is a non-issue because they don't control expenditures anyway (unless they're board members).

However, the next time someone gives you that reply, ask him/her this: "The proposal you would vote on requires that any flip tax money be spent only on capital improvement," such as a new boiler, elevator, windows, roof, sidewalk and so forth. That way the shareholders actually have MORE control over how the money is spent, as opposed to all the other income. (Of course, you would want to run this by the board first.)

"They say: They need ALL their profit for the next residence."

Then they're cheating their neighbors for their personal benefit. The purpose of co-operative housing (get it? "cooperate"?) is to work together in the long-term interests of the corporation. Not to withhold money so an individual can afford a nicer place when he/she leaves.

You could point out that with flip taxes, the building could be improved (nicer doors/lobby/light fixtures, new paint, new elevator, hire a doorman or another porter to help keep things clean) and that with any of these, the value of a shareholder's apartment will increase.

By the way, why do the shareholders think they will have to pay? Make sure they understand that they should make their buyers pay the flip tax! In our building, whenever there are competing bids, the flip tax is the first thing a bidder offers to pay (if one of them hasn't already).

If, on the other hand, people don't mind their home going to pot because they expect to move out soon, well, there's not much you can do, I'm afraid.

For other arguments, check the Habitat archives.

Ok, just make sure that flip tax do not go to the general reserve fund, but rather the restricted reserve funds. You can have more than one reserve fund account on the co-op's books. You can have a reserve fund each restricted for roof repairs, elevator replacement, boiler replacement, window replacements, emergency repairs. And a flip tax can be allocated to each fund on a set percentage.

V - "Selling" the flip tax to greedy, apathetic or uncaring Shs is no easy job. A few ideas. Tell them:

- Flip tax proceeds can enable you to do a key project more quickly (any maybe at lower cost) than if you have to delay it until you have adequate funds for it.

- Flip tax proceeds for projects you'll have to do in, say, 3 to 5 years can be invested and accrue additional money in interest or dividends.

- All Shs can benefit from a flip tax because improvements can be made that will enhance bldg value and make it a more desirable property which can help Shs get a higher price for their apts when they do sell.

- Along with notes in annual financial statements, the coop will inform Shs periodically on how flip tax proceeds are being used to improve the property and how this helps them.

- Flip tax reduces capital gains they'll pay on their sale profit. (I know bldgs that push this idea and I'm not sure if/how it works, so check it with your coop accountants!)

Don't try to win over Shs who may sell in a year. All they see is a flip tax cutting into their profit. Don't try to sell the idea in one meeting or memo. Keep a flow of info going. BTW, you don't necessarily have to get it voted in at one meeting. A Prop Lease can be amended with Sh written approval over a period of time (30 or 45 days), but don't make it too long or you'll lose Sh interest and momentum.

If it works for you, tell Shs in a letter what improvements cost since 2000 and what flip tax proceeds since 2000 would have brought in. They should be for capital projects, not paying bills, but here's another way to make your point. Do a little calculating and tell Shs what proceeds on sales in the last, say, 5 years could have paid for, for ex:
- 55% of the elevator upgrade, or
- 100% of whatever, or
- 80% of the coop's annual NYC taxes, or
- The super's salary for two years

In most bldgs, the seller pays the flip tax but a seller can stipulate in a sale contract that the buyer would pay the flip tax. Then the coop works this out with the seller so that the flip tax money goes to the coop and the seller doesn't just pocket it.

Also, you can have "a variable impact flip tax" for more fairness to some Shs. Business Corp Law (BCL) permits this.(I saw this in The Cooperator.) Your flip tax, for ex, can be a % of the sale price as long as that price is more than what the seller originally paid. Or a seller who makes no profit on his sale can pay a lower flip tax amount. But terms like this must be spelled out in the language of the amendment that incorporates a flip tax into the Prop Lease.

But the more fair you try to be to some, the more unfair it seems/is to others. Per the BCL, a coop must treat all Shs fairly and equally. Fairness has a way of working itself into knots, and the more disparity or accomodation Shs see the more resistance or complaints you may get. It's touchy.

Just a comment on something Anonymous said: "A coop is in the business of habitability." I know what you mean, Anon, but I think a coop is in the business of selling shares in its corporation and working to increase their value. Every corporation has products or services and wants to attract buyers who want to invest in the success of those products or services. A coop's "product" is a residential bldg. How habitable it is (i.e., how acceptable it is to live in it) is a big part of how good that product is. But there's a lot more to it - rules, management, board effectiveness, financial stability, good communication, Sh attitudes and willingness to cooperate and live as peaceably as possible with others - even bldg location, size, staffing, etc. I think a coop's business is value enhancement, in all the fair, legal, responsible, resourceful, and promising ways it can accomplish that. Just my opinion.

BP,

You mentioned,"- Flip tax reduces capital gains they'll pay on their sale profit. (I know bldgs that push this idea and I'm not sure if/how it works, so check it with your coop accountants!)"

Are you sure? I know that in a single family home, for example, one can add capital improvements to the basis of the house. Thereby, the sales profit is reduced and taxes are reduced. But, how can one do this from a flip tax which is supposedly used for capital improvements that have yet to come.

Also, how can a shareholder add his share of the capital improvements to his basis?

In all previous discussions on flip tax, passing it to the buyer is best. If you want to live in this building, contribute to the coffer. And then, it is the offer of the seller to pay it for the buyer, just like closing costs.

I have read all the replies regarding flip tax - however we have always had one - basic documents when the coop gives up the right to repurchase - we had to pay - however in the last 3 years our tax has gone from $7.50/share to $15/share, that does not includes all the assessments and raises that we have received every year - If you have a good board - fine - but if you don't all the flip tax is is another way to garner money that can disappear - and flip taxes really should not be used to supplement basic income for maintenance - put it in reserve fund for repairs and replacements otherwise it disappears and you still have to find the money to pay for the elevator, boiler, etc

"If you have a good board - fine - but if you don't all the flip tax is is another way to garner money that can disappear"

If you believe you have money disappearing, you need to spread the word and get a new board in power. Or call a special meeting of shareholders and address those concerns. This problem, after all, is not about income (be it from a flip tax, maintenance or tax rebate) but about impropriety on the board.

" - and flip taxes really should not be used to supplement basic income for maintenance"

Excellent point. In our building, the language that shareholders approved for the flip tax specifically stated that the income from flip taxes should go to reserves to pay for capital improvements. Again, this issue is not about a flip tax per se, but about how the money is spent.

Every coop/board has to decide for itself how to manage, use and raise funds. But as I said, you have to do a good selling job to get Shs to vote in a flip tax. And as others said, all owners benefit in various ways from it.

If a flip tax passes, the Prop Lease is amended (i.e., changed). It's my understanding that, BY LAW, the flip tax applies to all owners when it's voted in whether they've owned shares for 2 years or 20 years, and it thus applies to all Shs whether they voted for it or not. I'm almost positive of this. Check with your coop attorney.

There MAY be something in a Prop Lease that can be changed by board resolution only (in some cases there are, but your attorney would have to check this out) but a flip tax is not one of them.

V - you said you made the mistake of "relying" on a super- majority to pass a flip tax. That sounds like you weren't sure what % of shares you needed and just hoped for a super-majority. Maybe you only need 51% or 66-2/3%. A section in the Lease entitled "Changes in Terms and Conditions of Prop Leases" (Paragraph 6 in ours) states what % of shares you need to change/amend the Lease. Trying to pass a flip tax should never be done without your coop attorney's help, and the language and the terms of any change/amendment should be very precise and complete.

There are also different types of flip tax: per-share, flat fee, % of sale price, % of net profit, or a combination of them. Shs might vote for a per-share but not for % of sale price if they worry that the board will change the % (say, from 4% to 6%) at any future time - which a board can do.

Before you ask Shs to vote on a flip tax you have to decide what type of flip tax would be best for your coop based on things like how pricey your apts are, how many new v. long-time Shs you have, if you have good relations and support from Shs or if you have a lot of opposition/complainers, etc. Then you have to wage an "ad campaign" for the flip tax. You have to "sell" it - tell Shs all about it, stress its benefits, explain that it can raise money for future projects that won't come out of everyone's pocket, etc.

NOTE TO ALL - Check with your coop attorney on this first but here's something many bldgs do. Some do this and don't even bother with all the hassle of trying for a flip tax.

By board resolution only, a board can enact a coop policy (like it has the power to enact any policy) establishing a fee on the sale of shares. The board sets the fee amount (typically, equal to a total of 4 or 6 months maintenance) payable to the coop at an apt closing - usually 50% by the seller and 50% by the buyer.

You can't call this a "tax" or use certain other language. Your coop attorney can advise you about this. Some bldgs call it a "Move-in and Move-Out Fee" or an "Administrative Transfer Fee". Worth looking into ~ But again, don't do this without consulting with your coop attorney first.

Thank you! We believe we needed a 2/3 majority of yes votes and did not get them. Will seriously consider your response.

Is there any scenario when a building survived financially without every having a flip tax?

A lot of coops don't have a flip tax and they're surviving financially. Some are in A-1 shape, some are OK, and some are barely getting by. But the same could be said for bldgs that do have a flip tax. Most hold the funds from a flip tax in reserve for capital improvement projects, but some use it to pay off bills, etc. Flip tax or not, I think how well a coop is doing financially depends on how well funds are managed and utilized by the board/mgmt.

More and more bldgs are adopting a flip tax or enacting a fee on the sale of shares. It's a hedge against rising costs and a good way to raise money (in part or full) for bldg projects/upgrades without having to hit every Sh in the wallet more often than you have to.

You wrote, "I think how well a coop is doing financially depends on how well funds are managed and utilized by the board/mgmt."

Also remember there was a real estate tsunami not all that many years ago, and many buildings that had just gone co-op got caught short of the pier with foreclosures on Shareholders converting from tenancy to ownership who drowned in the economic squeeze of the times.

Our co-op was a victim of this (I sometimes grow concerned about a repeat period involving subprime mortgages). Not ALL financial problems stem from ill managed or ill utilized funds. Some buildings have had to climb a long way back from a precipice that no one foresaw or could prevent, and certainly did not result from misuse or mismanagement of co-op funds.

In the case of our co-op, we survived that period on luck, skill, and pure determination (as well as the judicial application of flip tax income to badly needed repairs of our infrastructure), and are now safely on shore.

We have a shareholder 3 months in arrears and the Board has chosen to send a lawyer's letter demanding payment. Should we also notify his lender? Can we revoke his voting rights and, if so, even if he pays up can he be barred from voting in an upcoming general election or getting himself on the Board for a set period followins his delinquency? (he owns twice as many shares as any of us due to size of his unit which is problematic, as he is).

Lastly, we are attempting to get a 66 2/3 per cent share of votes to enact a flip tax. If arrears shareholder is barred from voting, does that mean we can get our 66 2/3 per cent to enact flip tax based on total amount of shares LESS the errant shareholder?

Boardnew - Without knowing how "problematic" your SH is, I always think it's preferable to take an easier route first and have our property manager, not our coop attorney, send a letter to a SH in arrears asking him to pay up. It can also save you a little money in legal fees if it works. I'd copy the SH's lender on a second letter, not the first.

You can't revoke a SH's voting rights on any issues. That includes voting for a flip tax. If you need 66-2/3% for a flip tax to be enacted, that's based on the total number of shares for all SHs of record. Per Business Corporation Law (the BCL" with which all coops must comply), all SHs are to be treated "fairly and equally."

You also can't prevent a SH from running for the board if he wants to. If your board members campaign prior to your annual meeting to get themselves reelected and/or to win votes away from the SH who's in arrears, it would also be very inappropriate to tell other SHs that he's in arrears. This is personal, confidential information about him that other SHs should not be privy to. I assume that your board members are the only SHs who know about his delinquency.

Thanks for your response. SH in arrears has already received a letter from the Managing Agent and phone calls from Board Pres. and MA again, and still has not sent in any money. Is it time to engage counsel?

Regarding voting rights, I recall a story in NYTimes where it is possible to write into the Prop lease the requirements for being a Board member and being current on maintenance was a one of them.

In a book called "The Co-Op Bible (Shapiro, p.176) she recommemds buildings set Board members' qualification standards that are then written into the by-laws. Being "paid up" and having no violations" are suggestions she makes--it is protected by Corporation Law. Elseware in the book, she refers to revoking voting rights to SH in arrears is legal.

Anyone else?
BN

Folks need to be very careful.

In our lease, certain changes require a majority of the shares, other changes require two-thirds of the shares and in some cases changes require eighty percent of the shares. In all cases, the percentages relate to total shares outstanding and not just shares voting.

Note the use of the word shares and not shareholders.

But, as others have counseled, it should be in your proprietary lease and you or your counsel need to review the stipulations.

Recently, about a year ago, a coop in NJ attempted to convert to condo. My recollection of the circumstances is the building&#146;s proprietary lease required 80% of the shares to vote for the conversion. But certain amendments to the lease were permitted if 66.6% of the shares voted for the change.

A major brouhaha arose which, to some extent, is still being litigated. The conversion, by the way, did not occur.

The gist of the affair is that an attempt was made to amend the 80% rule to a lesser amount with the co-op&#146;s 66.6% rule, and to then use the 66.6% as the basis for conversion. Alternatively, the argument was made that the 80% rule did not apply as the co-op corporation would continue to exist as an HOA. In all, I am being circumspect, as I was not privy to all the details of the situation.

Dissident shareholders sued and the court sided with the dissidents and in effect opined that the co-op&#146;s 80% rule could not be vacated in the manner described above.

Boy, looks like I missed a hot topic here!

I didn't read through everything, but Ted from NJ gives sound advice. Have your corporate council review your PL and offering plan to ascertain the type of vote it must be put to, if the sponsors vote counts or not, etc..

I just passed one in one of my UWS buildings... Good luck

~AR

I am not a legal expert but a few years back I twisted my ankle very badly on a sidewalk that had tree roots pushing up under it and the concrete was cracked. After calling the city, they told me it was the landlord's responsibility for the sidewalk in front of their building. I informed that building's Board President who said it was the city's responsibility. Within a year, that whole tree was gone and the sidewalk had been re-cemented and the reason I assume was that some other pedestrian had tripped or fallen and had sued that co=op. We have some badly pitted sidewalk in fron of our co-op and I have been trying to persuade the rest of the Board that this is a real liability.

The landlord is responsible for the sidwalk in NYC. We had someone trip on the grating we have around are the trees. The grating was being pushed up by the roots of the tree. Our insurance took care of the suite. We had the sidewalk replaced and had them cut the roots to level the sidewalk before cementing.
Better to kill the tree rather then having someone get hurt or another law suite.

By the way the tree is alive and well and the side walk is level.

Larry - Your post said you "had them cut the roots to level the sidewalk before cementing." I assume that means the people who did the cementing cut the tree roots. Did you get City permission for that? It's my understanding that you're not supposed to do anything to street or park trees, and if any tree work has to be done the City sends someone to do it. Please explain. Thanks.

When we had our sidewalk done we hired a contractor to do the job and told him we need the sidewalk leveled at the locations that the roots we pushing up. He was a legit contractor with lic.,insurance,etc. we did not tell him how to level the sidewalk. He took care of it. I just know how he did it.

This was over five years ago, the sidewalk is level,the tripping hazard is gone and the trees are alive and well.

you are correct you are not to touch the city trees

i am sure it will damage the tree. one solution woudl have bene to simply make a larger tree pit.

Sally, the tree I mentioned in my first post whose bulging roots have caused our sidewalk to uplift has been there for ages. A resident told me it was there when she moved in our bldg in 1962 and it was an adult tree even then. There were very few street trees until the 1930s so it could be 70-75 years old. It's thriving but its massive roots are partly under our sidewalk and now causing it to uplift.

Street trees are City property so I assume the City planted it, and only City parks people are allowed to tend street trees (except for city residents who can take a course in tree care and become "Citizen Pruners".) Our tree is in a standard 5ft x 5ft tree pit. We didn't build it when the tree was planted long ago, and I don't think we're allowed to enlarge the tree pit. I think you need City permission or City parks people would do it after they inspect it and if they decide it's the best thing to do. But knowing how NYC works, who knows how long we'd have to wait to get a reply or some action on this.

At this point, our concern is fixing our uplifting sidewalk so that it isn't a hazardous condition.

I've had a bit of experience with the City and tree beds. Unlike most city agencies, Parks do respond fairly quickly. Best to make a call, keep a record of all conversations and and hope no harm comes to the tree. When that happens they do come very quickly!

It will not kill the tree, it is done all the time. Our trees are fine.

How big can you make the tree hole ?? Does't make sense.

The landlord is responsible for the sidwalk in NYC. We had someone trip on the grating we have around are the trees. The grating was being pushed up by the roots of the tree. Our insurance took care of the suit. We had the sidewalk replaced and had them cut the roots to level the sidewalk before cementing.
Better to kill the tree rather then having someone get hurt or another law suit

By the way the tree is alive and well and the side walk is level.

Unless you knock the door, you will not get an appropriate answer. Usually, you are responsible for the sidewalks. However, since there is a tree that belongs to the city or to some other jurisdiction, you do well notifying the city.

In the meantimme you should do some remedial work: marking the pavement with some paint to indicate a dangerous condition or even use blacktop to build some sort of ramp to eliminate the step.

In our case, the tree did not belong to the city but to the county since our building is on a county road. The co-op asked permision to cut the root responsible for lifting the sidewalk and the co-op sent photos of the condition. It also explained to the city that it had replaced the cement slab twice but the co-op could not be changing slabs every other year.

The city came and first placed compacted asphalt to build a a ramp as mentioned before, a year later the city came and replaced the cement slab. The city did not want to do anything with the tree because it was not its property.


AdC

Both Larry and AdC make good points.

The landlord is responsible for the sidewalk in NYC; however, if you call the appropriate department, you will get action.

I advise against the marking of the area without some remedial repair. The blacktop is good if you don't want to go for the $1,200 to replace the single slab (1500 for 2). But realize the when you make any remedial repair that is not permanent, you are saying that you are aware of an existing danger and are accepting some liability for not remedying/abating the hazard.

You don't really want to start hacking at roots; because, in addition to other reasons, you are compromising the balance and integrity of the tree... a professional should do this, not a mason. The contractor, if he knows what he is doing, may "shave" the root slightly without causing it damage to manipulate it.

If there is an open violation on the sidewalk, it is an instant lawsuit loss - according to recent case law. But no matter how you slice it, if someone falls, you get sued... God Bless America!

~AR

I was aware of a similar situation a few years back (not my property). Someone got the bright idea to cut the roots on the trees as they were pushing up a grateing around them. Guess what someone snapped some photos and called the city. It became a big mess then. I would say before you make a decision keep a log of who you contacted, take photos, and get sound advise.

FN.

Your idea is ok if you have months or years to contact the city about tree planting etc. It takes forever. If you replacing the side walk the contractor knows what to do to level the sidewalk.
they just cut the roots with a circular saw and proceed with the job. The co-op job is to tell the contractor you want a new sidewalk and you want it level. They know what to do.

Just to clarify for everyone
are you saying... it's sort of like the Soprano's?

You just say, "Make it go away"
then Forgetaboutit...
What happens after that you don't want to know...

Quiet the opposite, proceede with caution. Of course it can be taken by taking the correct steps.

FN.

Sorry, I was being facetious... It's Monday :-)

I will let it slide this time AR. I quick off the blocks.

FN.

Oh! YOu had a nice cement patio and nice cement retaining wall; so the guy/gal thinks that the whole area is more a nice grave with open roof and wants to provide some additional ornamention.

First, read the proprietary lease as to who is responsible for the repairs of the cement patio and retaining wall. If the co-op is in charge, you can dictate and even charge for defacing it! It's co-op property. However, consult your co-op counsel prior to doing anything.

If the trellises are on sidewalk and are an obstruction to others, then you have liability on your hands. The removal or cutting of the trelises in the common property will eliminate the issue.

AdC

ADC,You really got the picture of what this subterranean patio feels like-an open grave is pretty close LOL. The "grave" unit is flipping at almost 1 Million too! The co-op is responsible for repairs to the wall and concrete courtyard BUT the prop lease states the unit owner is responsible for the maintenance of the courtyard. We had to shell out a lot of money to another owner when water was seeping in under her floor becuase of a crack in the party wall. If the current owner does not keep the drains in the patio clear of leaves, he would be liable for repairs, right? He is the only one with access. There is also a wooden perimeter fence seperating it from the other rear yards, and it is crumbling. Pieces of it break off in winter storms and crash into other shareholder's windows. The trellises are within his yard, but unsecured and, not to attractive. My feeling is that the words "responsible for maintaining" mean that it must meet a level of safety and aesthetics, the latter being the more difficult criteria to establish as there's no accounting for taste. But the defacing aspect is an interesting one. Is it defacing if the owner chooses to paint it a nice white shade as the previous shareholders did? Or, is defacing a matter of taste?

There are various issues that need to the clarified:

1. Maintenance of terraces or pavements: It should be understood as broom and water cleaning of the surface. It should never be "painting of any surfaces." This is similar to maintenance of local plumbing lines: Cleaning lines of soap, debris, grease and hair accumulations, etc.

2. Repairs by co-op: If the surface or even the pavement of the patio is broken, or there is a pipe under the patio that makes the co-op to dig the patio, the co-op is responsble for digging, repairing the line and resurface the patio.

3. If you have trellises or fences are crumpling and falling into other shareholders' property, the co-op must order the shareholder to take down the fence as it becomes an obstruction to others and liability for the co-op. In fact, if you allowed the fences to go up, you should have dictated the conditions of the fence with a signed document with the co-op standards for the fence, i.e., how the fence should be maintained, specify the type of fence and color of the fence. If the trellises are within the patio and they fall within the same patio, it may be an eyesore to the shareholder above, but that's about it. Only if you have House Rules as to how these terraces must be maintained on a daily basis, you may be able to enfoce the cleaning or upkeep of the trellises.

4. Now the RETAINING WALL AND THE QUESTIONABLE ART!!! Again, the board may not have found objection for the first shareholder to "deface" the retaining wall by providing a coat of white paint. However, such an action should have been with board authorization by way of a letter. In other words, the board always reserves the right to dictate USE of co-op property. Since the retaining wall is repaired by the co-op and the co-op is liable for retaining wall failure you can dictate the mode of use, even painting it!!! IN other words, the moment you allowed virgin cement to be painted and not powerwashed, shareholders assumed that they could do anything they wanted. NOW you are stuck with the issue of the retaining wall.

In my best Machiavellian thinking, I would suggest that your board paint ALL the patios with retaining walls of SAME neutral color (beige, light gray, white, etc.) and have a resolution stating that after painting the wall, shareholders with patio will not be able to paint the wall since it is co-op property. NO plants (e.g., ivy type plants) may be planted near the retaining wall and allowed to grow on the reatining wall or allow any attachments of any type. In other words, reclaim property and define what is permissible from thereon. The fences may be treated in the same say, i.e., provide standard fencing and maintain it so that you have a property that looks half-decent while avoiding conflicts!

AdC

AdC

Check your proprietary lease and house rules. This actually may be a public space similar to a hall that limits it's use

It looks like the bill is not going to pass. Local councilmen have been getting alot of flax about this bill.

It is a good idea to call you local councilmen and tell them that this is a bad bill for co-ops

Another victory for the law, and a defeat for discrimination -- showing that Montserrate's redundant bill is unneeded.

Look up Hirschmann v. Hassapoyannes, Index No. 111521/04 (Sup. Ct. N. Y. Co. June 11, 2007).

In short, a co-op board tried to revoke its approval of a sale after it discovered that the buyer wanted to install a washer-dryer in his apartment because his clothes frequently become soiled as a result of a serious medical condition.

The board lost in court, as it should have.

Can anyone tell me why we need yet another law prohibiting discrimination?

Although passage isn't likely thanks to Speaker Quinn's opposition, the bill is not dead. Councilmember Montserrate is likely to keep pushing 119 because it scores points so easily. (He is also prohibited by term limits to run again for the city council -- but he could run for mayor!)

Please do contact your council member. Point out:

1. The state and federal governments already prohibit housing discrimination based on the same categories 119 lists. What's more, the state and federal government prosecute violations. And when private citizens do, they win too: It happened this spring in Hudson Heights.

In other words, the bill would be doubly redundant.

2. Co-ops are not country clubs, as Montserrate suggests. (Believe me, there's no golf course, dining room or liveried valet parking at my building!) He's using that example to make a class issue out of this.

Instead, co-ops are private corporations, like law firms and medical practices. If you want to buy shares in a law firm, you have to get the approval of the owners (i.e. board of directors), and they'll probably say no unless you work for the firm.

If Montserrate wants to change corporate law in New York State (and take away rights of housing corporations), he should change New York State corporate law.

3. If a building is, in fact, committed to keeping out gay/lesbian/transgendered people, or Jews (or Catholics or Muslims or Wiccans), or people with young children, do you really think they're going to write a letter saying, "Sorry, but because you're a gay Muslim with 2-year-old twins we're denying your application"? No! They'll come up with some other reason.

4. If the bill is really meant to protect buyers, why do real estate agents get cash if a co-op loses in court? Montserrate's answer is that the agent loses money when the deal falls through. But so do the real estate lawyers, and the moving company, and the super (who would get a $20 tip for helping with the move. Why not include all of them? Who, in fact, is Montserrate taking care of?

IN doing a refinance, you should sit down and start soul searching:

1. Do you need to dilute your current equity for, e.g., capital investment and you are going to request above and beyond your current mortgage in order to perform that work?

2. What capital improvements do you plan to perform and what is the budget to do the work? Do you have an engineering study to help you with that budget? Are some of these capital improvement covered under programs for reduction of energy that may be finance with low interest loans?

3. Do you currently have a penalty on your ballon if you were to take advange of lower interest rates? What is the amount of that penalty? Run numbers to find out if it makes sense to do the refinance before or wait a 6-12 months more.

4. What would the current bank do for you NOW in terms of refinancing before? Interest rates? Forgiving the penalty? etc. Start talking with them. Talk is cheap and helps to get training when the real negotiations start!!!

5. Do you want another ballon or fixed interest self-amortizing mortgage with some sort of credit line associated to the mortgage for the life of the mortgage (not just for the first 5 years of the mortgage)?

5. Contact other banks and let them know you are shopping for a new mortgage? I would do knocking doors first by going to directly to the different banks, i.e., NCB, Amalgamated, etc. Then, go to a broker if this is not effective. Speak to your management: he/she may know some contacts in the banks and reputable brokers.

6. Can you lock the interest rate forward for the next 6 months, 1 year or 18 months? We did this and lock a fantastic rate. However, we could only lock 6 months.

8. Speak with your independent accountant so that numbers can be run of the different offers and comparisons may be established. If in your "green board" you have someone with financial background have the person be the contact for banks or management on this topic and have the person develop an Excel spreadsheet to compare apples to apples as far as bank costs go.

9. The spreadsheet should have all the costs defined. Some banks will quote one thing and not the other; thus, by establishing a comparison, you will see your costs - Example: All banks charge you for environmental studies, engineering, etc. different costs. Your bank probably will skip those costs costs because they already had those studies done. So, you may have a savings there, but not in other areas.

Finally, bank are there to make money just like brokers; thus, they are not your true friends. Brokers will try to negotiate for you the best deal because you are paying the commission. So, commission costs are important. Therefore, your job is to push the deal to the edge of the table and get the best terms for your mortage.

Good luck!

AdC

Couple of points:
It is great you ask, many just jump in blindly and regret decisions later..

1. First: BE CLEAR ABOUT THE REASONS YOU WANT TO REFINANCE - What are your goals? do you want long term debt, or no? Self amortasizing, or not? is your aim just to keep payments low, or pay it off? Do you want cash out?, etc.. see below..

2. FIND A GOOD LOAN OFFICER AT A TRUSTWORTHY BANK OR BROKER - you will probably want NCB or M&T or the like, many brokers/bankers can be recommended.

3. GET QUALIFIED - Submit app and all required docs

4. DECIDE ON THE TERMS OF YOUR LOAN - you should be presented with several options to review.

5. YOUR BUILDING WILL BE APPRAISED - An environmental report may also be requested.

6. YOUR FINANCIAL SITUATION VERIFIED

7. A TITLE SEARCH WILL BE PERFORMED

8. CHANGE YOUR MORTGAGEE CLAUSE ON YOUR LIABILITY INSURANCES

9. CLOSE THE LOAN
10. FUNDING THE LOAN
11. CONGRATULATIONS!

Before a co-op approaches a financial institution about refinancing, it should carefully assess its current financial position and accurately determine what the real refinancing needs are. In instances where the co-op may be seeking additional money in order to make capital improvements or to comply with Local Law 10 or 11 requirements, it is not uncommon for a co-op to end up borrowing too little in the name of frugality.

As the board, you can contact half a dozen banks or lending institutions and request proposals for your needs. Or you can hire a financial consultant to do the research and bring the best deal or two to the board for a decision. You must certainly look around, though--on any given month, it can be a different institution that's offering the best deal. I also strongly recommend you involve your accountants and lawyers in the process. They are professionals who can open doors that had not been explored. Only if your managing agent is competent enough for the task, should he be entrusted with this.

Co-ops should work with their accountants to accurately forecast their needs for capital, as well as the building's expenses five, ten and up to 15 years ahead, this way, the co-op will borrow the appropriate amount of money and not fall short, sending them back to the bank a couple of years later for another round of financing [when interest rates may not be so favorable.]

Tax write-offs aside, and despite the fact refinancing will affect you directly as a shareholder, your co-op board does not have to put their refinancing plan to a vote amongst the shareholders--unless it is expressly written in the cooperative's bylaws. Given that shareholders often cannot agree on a color for the lobby walls, it's sometimes best to leave certain financial decisions to the board alone.

Most economists and experts in the market believe mortgage interest rates will eventually begin to creep upward. How quickly that will happen is uncertain. However, interest rates have the ability to go up very quickly in the right market conditions. What effect would that have for a co-op and its shareholders? Like the long-term course of rates themselves, this is also the subject of debate.


The following is a link to a good past COOPERATOR article:
http://cooperator.com/articles/636/1/Need-You-Know-More/Page1.html
Hope this helps.

~AR

I agree with the other feedback AR + ADC.

But most importantly, what is your program to retire the debt overall? Yes, retire the debt. If you don&#146;t have a long term program, e.g.: twenty to twenty five years, all this work to &#147;refinance&#148; is a waste of time and energy. Why leave a debt burden legacy for future generations much as the government does these days.

Your board needs an independent financial planner, I don&#146;t mean your attorney, your bank or your accountant or accounting firm. You really need a true financial planner.

You need a strategy.

Interest expense is non-performing. Having a tax deduction for residents is useless.

All need to wake up and find a way, albeit very long term to eliminate &#147;all&#148; debt. Yes, I can make this assertion, as we retired the original $7,700,000 debt for our five hundred unit coop without ever refinancing.

Do you have assessment?

My suggestion without even seeing your finances or books is to make the assessment equal to two months of your monthly maintenance each year. Incredulous, then look at your AICPA mandated schedule of forecasted capital expenditures. You do produce one? Older buildings will need the two times, younger buildings then one time.

To avoid this introspection is to fail in your fiduciary responsibilities.

Along the way, I assume that you are brilliant financial planners and you "do" raise the monthly maintenance each and every year by 3 to 4%. And, I assume all are honest fiduciaries and thus don&#146;t run for the board on a popularity slate, e.g.; we didn&#146;t raise maintenance. There is nothing but chicanery in not raising maintenance every year, yes, every year.

You are in an ideal position to explore a new option : co-op to condo conversion.

There are many benefits and advantages for your co-op especially if you are near the point of refinancing.

At the Cooperator Expo, I atended a seminar held by a conversion company by the name of ROA Hutton, LLC. They have a website www.roahutton.com

Cooperator corporate presentations are self serving and suspect.

Sure convert to condo, but with eyes open.

But if you have a mortgage, then the shareholders need to &#147;eat&#148; the mortgage burden to convert.

So someone has a coop loan.
For argument sake let&#146;s say there is $100,000 outstanding on the principal.

Then let&#146;s say this is a 400 unit coop.
Then let&#146;s say there is an $8,000,000 outstanding principal on the coop&#146;s mortgage.
This means, on average, each unit needs to assume $20,000 of the unpaid principal.

Now be very honest.
Have capital improvements been performed as defined by an outside professional engineering firm or have the prior boards deferred needed expenditure?
If expenditures have been nil or deferred, then in converting you will need to obtain an additional influx of capital to provide the basis for funding all the ignored capital improvements.
Let&#146;s say that $10,000,000 in capital improvements have been placed on the back burner for future generations to fund, but the past is now.
On average, each unit will need to underwrite $25,000 for these unfunded capital improvements.

Then, let&#146;s not forget the converter&#146;s fees; these will be somewhere between $2,000 to $3,000 (I would say regardless of the firm) per unit. Not much but still a sum that needs to be funded.

Then there&#146;s costs to the coop corporation for attorney fees (new bylaws, etc.), bank closing costs to retire the mortgage sooner than anticipated (if this is the case), engineering study, etc. Let&#146;s use $1,000 per unit average.

Finally, some closing costs for the shareholders, including title insurance, etc. Let&#146;s use $1,000.

OK, let&#146;s recap.

$ 100,000 unpaid shareholder loan principal.
20,000 outstanding portion of coop corporate loan
25,000 unfunded capital expenditures
2,000 converter fee
1,000 coop corporate costs
1,000 closing costs
---------------
$ 149,000 cost to convert average shareholder
---------------

Yes, the shareholder can typically take a condo mortgage to fund the above amount in total. But, we need to very honest and open as to the full burden of costs.

Yes, a condo mortgage is typically a bit less, about .25% than a coop loan.

Yes, many banks will make a forecast of the &#147;new condo&#148; value of the unit and thus the higher assessment (by the bank) will allow for a higher mortgage principal.

Yes, the shareholder can &#147;roll&#148; all the costs into a new mortgage.

Yes, condo&#146;s command higher prices.

- - - - - - - - - -

Yes, there are reverse mortgages for those over 62, but do please remember that if you elect to follow the path of converting from c0cop to condo, you are promoting a conversion and not mortgages, not reverse mortgages, etc.

Yes, typically for a small number of shareholders there are tax implications, e.g.: the conversion transaction is not tax free. Many converters seem to gloss over this issue

- - - - - -

Not trying to dissuade you from converting. Just trying to make you aware of the full burden that all face.

Ted,NJ

There is also reserve mortgages available for co-ops for Sr. citizens. This is not just an exclusive type of tapping into equity for condos and single housing.

Finally, I know it was for argument sake, but it is important to clarify that the underlying mortgage will have to be divided by shares. In some cases, co-op ownership is a first step type of ownership; therefore, many shareholders may not be in position to absorb the burden of a very large mortgage. Therefore, they will either have to sell or else...


AdC

My point in showing the full financial burden attendant to a conversion of a coop to condo wherein the coop has an underlying mortgage is that some folks will not be able to absorb the higher &#147;mortgage principal&#148; demanded by the need to retire the coop&#145;s mortgage and perhaps fund neglected capital expenditures.

A bank, worth its salt, will not write mortgages for a building in disrepair. And, let&#146;s not forget, a condo/HOA and virtually nil borrowing power. All that an HOA can pledge is its future income stream.

While the owner&#146;s reap a substantial number of benefits, the HOA is somewhat more constrained in its actions.

Yes, only condo owners (e.g.: deeded property owners) can avail themselves of a reverse mortgage, a selling point for conversion. The AARP offers some very good and very simple literature.

Yes, 100%, the shares dictate the apportionment of all costs, save the shareholder&#146;s own fees incurred in a conversion, e.g. title insurance, mortgage appraisal, filing fees, attorney fees and any bank fees while rolling a coop loan to a condo mortgage.



.

The AARP booklet that details reverse mortgages (Home Made Money)is available via a telephone call to ARRP at:

1-800-209-8005

In our process, we have suggested that all who have an interest in reverse mortgages call AARP for the booklet. This is in lieu of obtaining a supply and then distributing the booklets; which in our mind crosses the line and then becomes "promoting reverse mortgages".

This was my first clarification point, i.e., rerverse mortgages are not just exclusive rights of condos.

AdC

Sorry, I really reversed "reserve".