Maitland McDonagh in Board Operations on January 17, 2013
What you do, says attorney Elliott Meisel, a partner at Brill & Meisel, "depends on the culture of the building. You can send a letter from the managing agent and then, if there's no response, progress first to a letter from the board's lawyer and then to a default notice. But some boards go straight to the default notice for financial reasons; you can collect legal fees when you file a default notice, but not for having your lawyer send a letter."
Bank on It
Michael Wolfe, president of Midboro Management, also suggests notifying the owner's lender, because banks "don't want to keep giving money to borrowers who are violating the rules." Markowitz says Merlot Management has achieved good results with fines, the trick being to figure out how large a fine will cancel out the potential for financial gain.
That's not to say that the stick is always better than the carrot: Geoffrey Mazel, a partner at Hankin & Mazel, represented a co-op with a history of lax enforcement whose board had finally decided to get its subletting house in order. The first step was to make a one-time amnesty offer to shareholders who were in violation but willing to clean up their acts. "Let's say that out of ten units, six or seven can be persuaded to come into compliance. Litigation is expensive, and you've saved the co-op the cost of litigating ten cases rather than three or four."
Litigating even one case can be a pricey proposition. Witness what happened at 139 East 30th Street, a Manhattan co-op Meisel represented in its efforts to evict a non-resident shareholder who claimed she needed apartment access for multiple employees of her home-based colonic irrigation business — while running online ads touting her apartment's proximity to major tourist attractions and its "comfortable rooms" available at "daily, weekly and monthly" rates. (For all the bizarre details, see "Subletting Your Imagination Go Wild: Weird, Wacky Eviction of an Illegal Hotel.")
"That was litigated for over a year and cost between $60,000 and $70,000 in legal fees," Meisel says. "A portion came from the co-op; we expect to collect a portion from the owner and in the process of evicting her the co-op will sell her shares at auction, and they'll be deducted from the legal fees — the first lien on shares go to the lawyers." Bottom line: even a portion of $60,000 to $70,000 is a lot to cough up in the short term, even when there's a clear long-term benefit.
Meisel also debunks the myth that condominiums have little recourse if an owner decides to turn his or her apartment into a cozy little bed and breakfast.
"Co-ops and condos can both impose and enforce conditions of use," he says. "It's more that in condos the process is cumbersome. If a condo board wants to regulate use more intensely, it requires an amendment to the bylaws. And while a condo board can go to court for an injunction and get a monetary judgment, the owner's bank has first dibs on proceeds from the unit's sale. Since the bottom-feeders swoop in looking for a cheap buy when a condo unit is being sold under those circumstances, there may not be much left after the mortgage is paid and the condo winds up in the lurch."
It's enough to drive you crazy. Still, making the rules clear is a good start. So is requiring extensive board packages for condos as well as co-ops; they can help weed out buyers who don't plan to live in their apartments. And never underestimate the value of realtors familiar with your building's culture.
"Before I show an apartment, I vet either the real-estate agent or the prospective buyer," says veteran New York City broker Gene Vezzani. "If I realize they're interested in an investment property they can lease short-term in a co-op or condo looking for owner-occupants, I just say, 'I don't want to waste your time; that's not permitted in this building.'"
Ultimately, you need to make sure your guidelines on guests and subletting are clear and unambiguous.
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