Joseph G. Colbert in Co-op/Condo Buyers
When your building was first converted to cooperative ownership, the sponsor's lawyer probably stuck a set of boilerplate house rules to the proprietary lease. If the sponsor's attorney personally crafted the rules instead of using boilerplate, those rules were probably favorable to the sponsor in his goal of selling apartments. As time went by and more and more people bought from the sponsor, the resident board members had different needs than the selling sponsor and probably changed the house rules. Interestingly, I have come across cooperatives today that have never changed the boilerplate rules. Others change them several times a year.
Bare Majority of Board-Members
It is extremely easy for a board to alter the house rules. Typically, only a majority of board members at a meeting with a quorum present is needed. With a seven-member board, four would have to attend to satisfy the quorum requirement, and then three out of the four can vote to change a house rule. The rules can be amended again at the next meeting if the members change their minds or a different mix votes against the rule that was passed.
As long as boards stick to quality-of-life issues in the rules, they usually stay out of legal trouble. Every now and then, however, a cooperative board tries to sneak in a requirement that doesn't belong there.
The most notorious is one concerning fines for each violation. If the proprietary lease contains a provision authorizing such a fine, the board is authorized to adopt a house rule doing that. The trouble is that boards sometimes adopt one when they are not authorized to do so. The usual reason that boards do this is that they cannot, or do not want to try to, obtain a supermajority of shareholders to vote for an amendment to the proprietary lease.
The rule of thumb is that boards cannot impose financial obligations on shareholders in house rules. If they want to do so, the financial obligation must be in the lease. That principle is not clear all the time. For example, a rule requiring shareholders to carry insurance would not be appropriate because it imposes a financial obligation on shareholders (they have to pay for the coverage), and it thus should be a proprietary-lease amendment.
Potential for Abuse
As a shareholder, you have to follow house rules, but a board does not have to enforce them. Most proprietary leases contain a provision that the cooperative corporation is not responsible for a shareholder's violation of the rules. Thus, cooperative boards can exercise their business judgment and decide not to enforce a rule.
For instance, if your upstairs neighbor has a noisy child who runs back and forth all day long, that clearly violates the prohibition dealing with noise in apartments. Your neighbor likes the look of hardwood floors and has no floor-covering in the main living areas, a violation of the co-op's "80 percent floor-covering" requirement. You complain to the board, and the board decides to stay out of the dispute. The co-op may have a warranty of habitability problem, but it still cannot be charged with failing to enforce the house rules.
Co-op boards can also apply their house rules prospectively as well as retroactively. In 1954, a shareholder in a Fifth Avenue building was allowed to erect a 30-foot awning over his terrace. But then in 2006, a new house rule prohibited such awnings. The co-op also had a restriction against air-conditioning units, unless they were through-the-wall installations. When the owners of the apartment above the terrace with the awning wanted to install a through-the-wall unit, the board decided to require the shareholder with the awning to remove it to accommodate the installation of the air conditioner. The Appellate Division, First Department, deferred to the board's business judgment and did not disturb the retroactive application of the new house rule on awnings.
The quality of life in a cooperative building can be changed in a heartbeat by a board vote on house rules. Frankly, I am surprised by shareholders who do not question board candidates on what they envision changing in the house rules.
Joseph G. Colbert is a partner in the law firm of Kagan Lubic Lepper Lewis Gold & Colbert.
Adapted from Habitat February 2007. For the complete article and more, join our Archive >>
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