BOARD OPERATIONS

We plan to travel overseas and will need to sublet our apartment. Should we look at co-ops or condos with this in mind?

Generally, condo rules concerning subletting are less restrictive than those of co-ops. The similarities are that both co-ops and condos usually limit the maximum term of a lease to one or two years and the minimum term must be a year. Many co-ops will not review a sublet package unless the shareholder has owned the apartment for a minimum amount of time (usually a year or two) and often have a limit on the number of years an apartment may be sublet.

Additionally, both co-ops and condos require that an application that includes financial information must be submitted to the board, similar to a sales package, and co-ops sometimes require an interview with the prospective subtenant.

However, one important difference is that co-ops can deny a sublet without giving a reason. Condos have a right of first refusal, which means that if a condo votes to deny a sublet application, then it must market and rent the apartment at the stipulated rent. This is the reason that almost all condo sublet applications are approved.

Arline Kob is principal at Key Real Estate Associates.

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It could be. But beware: you need to do some research. Has the building been taking money from the reserve fund into its operating fund to keep the maintenance stable? Has the building reduced services to keep the maintenance the same? Has the building had assessments to cover operation shortfalls? Does the building have a large amount of unpaid bills? Has the building balanced its budget or run a deficit? If the answer to any of the above questions is yes, then the "great" news is not so good.

Although not having increases may look great at first glance, it may be hiding a multitude of problems. This could be a ticking time bomb. The next maintenance increase may be huge to cover many years of operating shortfalls. It is very rare for buildings not to have even small maintenance increases year after year. Realistically, most expenses go up. Water, payroll, real estate taxes, insurance, and other essentials have risen every year. Some buildings have a small maintenance increase even when it is not needed just to gather extra operating funds.

So you need to do your homework, read the minutes, ask questions, and look deeply into the building's financial information to get a true picture of what has been and what is going on; then you will really find out if it is truly "great news."

Steven Greenbaum is director of property management at Mark Greenberg Real Estate.

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There are a multitude of reasons why sizable arrears should set off a series of alarms for owners and prospective buyers. Broadly, uncollected arrears signal that the board and management company are not focused on the property's fiscal or physical health.

Arrears may suggest an underlying physical impairment to the building, causing owners to withhold payment. If this is not the issue, uncollected arrears are a clear display of poor management. This also indicates that the board of directors is not fulfilling its fiscal responsibility to shareholders/HOA members by not utilizing all legal means to collect the funds.

Regardless of the reason, arrears undermine the financial stability of a property, potentially jeopardizing its ability to satisfy financial commitments to the mortgage holder and other creditors. Should this condition exist, the board may be forced to dip into the reserve fund to satisfy property debts. Further, banks and appraisers frown upon poor financials, often denying financing for prospective buyers. This makes selling more difficult and lowers the value of the property

Arlene Waye is broker and president of Awaye Realty.

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One of the most important responsibilities of a person sitting on the board of a cooperative or condominium is to make certain the building’s assets are properly maintained and protected. This is particularly true with regard to the reserve funds.

Those funds, which can add up to substantial amounts and are held for long terms, must be managed and handled in a prudent manner. Typically, it's professional money managers who should be investing and monitoring these funds. The funds should be maintained in various instruments with differing durations based on how secure they are and the return available.

But what happens if that professional money manager sits on the board of the building? Should the board member-investment adviser make the investment decisions? How much risk should that person assume? Should the board member actually invest the money and receive a commission?

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An assessment is a recurring fee that is levied by a co-op or condo usually on a monthly or quarterly basis. As opposed to maintenance fees and carrying charges, which are typically used to cover a building's regular operating costs, an assessment is usually levied as a means to pay for capital improvement items, one-off transactions, extraordinary legal fees, or sometimes to balance an annual budget that is running a deficit. If a board has levied a permanent assessment (instead of increasing maintenance or monthly carrying charges) it may indicate that the monthly carrying charges are already high in relation to other comparable properties or that the property does not have sufficient reserves to cover extraordinary costs

Michael Crespo is president of Citadel Property Management.

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We're buying an apartment in a building that allows smoking. Since we smoke, we're worried this could eventually be banned. Thoughts?

When you say the building "allows smoking" I would assume this means it does not have any restrictions regarding smoking in resident apartments or common areas. But there still may be consequences.

Smoking can be a management company nightmare. We get a call from a resident that her child's room smells of smoke. An elderly person complains of being ill from second-hand smoke. A board member wants action. The house rules do not provide a means for the board to act. What can be done? A friendly letter from the management company making the resident aware of the complaints would be a start. Also helpful: a visit from the manager to inspect the premises and determine the legitimacy of the complaints, and perhaps offer suggestions.

These are some of the potential consequences to be expected for a smoker in a building where restrictions on smoking are not imposed. Where restrictions are written the consequences can be even greater. Fines can be imposed, legal notices may follow, and a great deal of management oversight will be needed.

What we would always suggest is that those who choose to smoke get a high-quality smoke purifier or filter system. Perhaps restrict your smoking to the room or rooms where you have such filters. And perhaps simply respect the rights and comfort of your fellow residents by limiting your smoking in your apartment. You do not want to be the catalyst behind a new board resolution restricting smoking or imposing new fines.

Seth Kobay is president of Majestic Property Management. 

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We just learned that the building's proprietary lease expires in three years. Our lawyer says that is a problem. How so?

If the proprietary lease expires in less than 30 years, it should be amended to extend the term so that owners can obtain financing. If a proprietary lease's term is shorter than 30 years, banks may not provide a mortgage because their collateral is not protected. To increase the expiration of the lease, the bylaws require that the proprietary lease be amended. The percentage of shares required to amend a lease can be found in the proprietary lease.

It is imperative that a managing agent and/or the co-op attorney check all lease expirations so that a cooperative meets the bank requirements and apartment sales can go forward. A "Notice of Approval of Lease Amendment" must be sent out to all shareholders to obtain written consent to increase the lease by a minimum of 30 years.

With a co-op's lease expiring in three years, buyers — unless they pay cash — will not be able to finance their purchase. The proposed amendment should be drafted by the co-op attorney setting forth the purpose and importance of voting for the amendment.

Ellen Kornfeld is vice president of The Lovett Company

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In a cooperative, the use of the premises — which includes subletting — is governed by the corporation's proprietary lease; in a condominium such use is governed by the declaration to the bylaws. The general rule is that an apartment can only be occupied by the unit-owner(s)/shareholder(s), or any immediate family member, but in no event may a guest, or in this case a "roommate," occupy the apartment unless one or more of the permitted residents are in occupancy.

That said, the question posed is much more likely to be a potential scenario at a condominium. In a cooperative, where boards have the right to reject prospective purchasers, boards carefully scrutinize the finances of these would-be buyers and if they are not in a position to afford the apartment without the additional revenue from a roommate, it is unlikely a co-op board will approve them.

The situation described is not ideal for a condominium, as transient traffic is usually discouraged. With the advent of Airbnb and similar services, it has become easier for unit-owners to generate income through short-term rentals. The proposed scenario might be difficult to prevent if the unit-owner remains in residence with the "roommate," as New York City housing laws permit.

It should be made clear to all prospective condominium unit purchasers that they may be entitled to have a roommate, but the roommate must observe all building rules and the unit-owner is responsible for any infractions of building rules by the roommate.

Max G. Freedman is vice president of Maxwell-Kates.

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Very often, a board will decide to try to work out a payment plan with a resident who is in arrears. That avoids costly legal action, which will increase the amount that the resident must eventually pay, and maintains an amicable relationship between the board and the resident.

We always try to take this path, unless the circumstances are such that the resident has no plan or options available to pay the amount owed. In those cases, unfortunately, legal action needs to be started to limit the impact on the building. The arrears need to be monitored every month and discussed with the board so that the amount does not get overlooked and become a bigger problem. Most buildings operate on a break-even budget, and that assumes everyone is paying his or her fair share each month. When that doesn’t happen, operating bills cannot get paid in a timely manner.

Donald E. Wilson is president of Blue Woods Management Group.

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Do you think it’s a problem if the same person has been the board president for 20 years?

Some buildings prefer reelecting certain board members year after year to preserve the continuity of a co-op/condo’s history and style of oversight.

Shareholders elect a board but the board members then elect their officers. If a board president and treasurer have been in their respective roles for many years, it is often because those people may have the most time and/or experience to handle those roles.

For new shareholders who may find this scenario strange, we recommend they nominate themselves as candidates on the annual meeting proxy/ballot form and/or get involved on subcommittees. Many buildings welcome new shareholders to participate on special projects, provided the involvement is genuine, consistent, and beneficial to the building.

Georgia Lombardo-Barton is president of Barton Management.

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