LEGAL/FINANCIAL

The board had decided to revise its bylaws and proprietary lease. Now what?

It is a familiar story: the co-op corporation’s bylaws and proprietary lease were antiquated. Both documents were poorly drafted, rife with internal inconsistencies and conflicts with current law. There were no longer relevant provisions regarding the original sponsor, and they were not adequately meeting the current needs of the co-op. The time to update had clearly come, and the board asked its attorneys to draft revised documents. And that is where the story ends for far too many boards.

Preparing revised documents is the easy part. Getting to the desired result – obtaining approval of two-thirds of the shareholders – is the hard part. But we helped our client achieve it. How?

Read more

The gravel-shingle roofs on the 12 buildings in the Hampton Vistas condominium in Suffolk County were a couple of dozen years old and beginning to show their age.  The money the condo's board of directors had been setting aside every year was proving inadequate to keep up with rising repair bills.  The board had to wrestle with several questions:
 
Should they hire an engineer, at a cost of about $20,000, to do an assessment of all the roofs?
 
Should they replace all the roofs at once, or attack the worst ones first and stagger the replacements over several years?
 
Above all, how should they pay for the job – with a bank loan or through an assessment?

Read more

The nation’s largest banks have been working behind the scenes to unhorse the mortgage finance giants Fannie Mae and Freddie Mac – and, in the bargain, capture their hefty share of the country’s $5.7 trillion home loan market.

While the banks’ quiet campaign has the support of the Obama administration, according to a report in The New York Times, some housing experts fear that allowing big Wall Street banks to gain greater control of the mortgage market will increase costs for borrowers.  They say it also could hurt smaller lenders and lead to more taxpayer-funded bailouts of banks Washington regards as too big to fail.
Fannie Mae and Freddie Mac, which now back 80 percent of the nation’s mortgages, should not be dissolved, in the opinion of Elise J. Bean, a Senate counsel who oversaw a deep investigation into the causes of the recent financial crisis.
“Fannie and Freddie have their flaws,” Bean told the Times, “but that doesn’t mean the answer is to hand over their business to the banks.”

Read more

The ever-changing Second Avenue Subway project continues to affect many properties along its path.  If your building is one of them, there area number of steps your board should take to ensure that your co-op or condo is adequately protected.

Read more

Affordable housing is beginning to look like an endangered species in New York City. To make sure it doesn’t go the way of the dodo, a City Council task force has proposed eliminating property taxes for the city’s 1,271 limited-income co-ops in exchange for tighter rules – including strict limits on the income of buyers and the price at which units can be sold.
 
As reported by The Wall Street Journal, the task force’s proposals sprang from a pair of yin-and-yang trends: distressed limited-equity co-ops fell behind on their property taxes by $7 million in fiscal 2014, while successful limited-equity co-ops have been selling for as much as $1 million – and, in one case, more than $2 million – effectively removing them from the city’s stock of affordable housing.
 
“The current situation both imposes more taxes than we think are necessary and leaves the public with far too weak guarantees of long-term affordability,” said Councilman Mark Levine, co-chairman of the task force, which also proposed requiring limited-equity co-ops to hire outside property managers. “It is crying out for reform.”

Read more

A 40-story residential and retail tower will fill the sky of Brooklyn Heights – if shareholders from a co-op that owns the site accept a big money proposal from developers.
 
Residents of 75 Henry Street, a prime 33-story co-op with 370 units, received a letter this week from their board outlining the development plan that includes demolition of the Park Plaza Diner (a neighborhood institution) and a row of retail stores that sit on the co-op’s property.
 
According to the letter, the low-rise restaurant and retail buildings would be replaced by a 40-story residential condominium and new retail spaces that would dwarf neighboring buildings.

Read more

Smoking bans within individual units are legally enforceable. Certain condominium associations that we represent have amended their bylaws to ban smoking within individual units as well as within the common areas. Since courts have already ruled that secondhand smoke is a legal nuisance, condo boards usually respond aggressively to owner complaints about smoking odors. However, these boards determined that there were issues. Even if they could locate the source of smoking odors, it could be difficult to hold the offending owner fully responsible for allowing the smoke to infiltrate into other units because of the construction of their buildings. In addition, engineering solutions were potentially costly and not guaranteed to resolve the problem. To avoid the cost of investigating, arguing, and resolving recurring smoking complaints, the boards proposed a general ban on smoking within units, and the unit-owners resoundingly agreed. One unit-owner sued the board, claiming that the bylaw amendment unconstitutionally infringed on his rights of privacy and exceeded the powers of the condominium. After reviewing relevant case law, the court signaled to the owner that he surrendered certain rights by joining a condo association, and that the association owners did have the right to amend their bylaws to ban smoking. The unit-owner agreed in court to comply with the ban and to pay a substantial portion of the association’s legal fees. But despite his agreement, the owner has continued to violate the smoking ban. As a result, the association has been compelled to file a motion for contempt. The owner now faces substantial monetary fines and may ultimately have to sell or vacate his unit.
 
Takeaway
 
Any rule needs to be enforced to be effective. Associations need to be prepared to enforce a smoking ban to protect the interests of its owners. Smoking is not considered a disability under the Fair Housing Act or the Americans with Disabilities Act, for which a “reasonable accommodation” must be made. However, the power of a smoking addiction can apparently overwhelm an addict’s best efforts, even when faced with a court order.

Read more

A board was contemplating changing to an oil-to-gas dual-fuel conversion system and was apparently solely relying upon the suggestions of a contractor. We had certain concerns about proceeding without having an engineer review the proposed scope of work or provide specifications. We had a formal project agreement in lieu of a signed proposal, and we did not have a designated warranty. The project also lacked requirements for the oversight of the project and monitoring of critical stages, as well as payment approvals. The property manager did not have the requisite experience to supervise.
 
We were finally able to convince the board to utilize an experienced engineer to review the scope of work, and recommend changes regarding the monitoring of the project. We also negotiated major changes together with an extended guarantee from both the contractor and the manufacturer.
 
Takeaway
 
Use your professionals! This board was headed toward potential trouble in this project by not wanting to employ professionals (until we convinced them otherwise) and neglecting to have the right documents drawn up.
 
Contractors and managing agents are generally experienced and can coordinate the execution of a project. Nonetheless, it is recommended that the board engage an engineer and attorney to either prepare and/or review the specifications to be utilized by a contractor, especially with respect to the replacement and/or retrofitting of the existing heating plant; or to assist with coordination and scheduling with the contractor/plumbers and Con Edison; and, most importantly, to monitor and supervise the project to ensure the contractor has actually performed in compliance with the specifications and the building code. When approving requests for payment to the contractor, the managing agent may be very qualified and competent to perform the oversight services, but in retrospect is neither a technical expert nor an engineer, and it is preferable to rely on another experienced expert.

Read more

Can co-op owners successfully apply for a reverse mortgage?

That's the question put forth to Ronda Kaysen in her latest Ask Real Estate column. A reader writes, "I know people who have [reverse mortgages], but I was recently told they are unavailable on co-ops." What's a shareholder to do? Kaysen explains what a reverse mortgage is and talks to two professionals, giving the submitter a firm -- if perhaps unhappy -- answer to their query. 

Read more

We represented a co-op where a shareholder engaged in repeated violations of the co-op’s house rules and proprietary lease provisions. The violations included noise issues; odors; leaving the gas of the stove on; and leaving food cooking in the oven unattended on multiple occasions, which caused a fire and smoke to fill the hallways. Because the incidents were spaced apart over months and even years, we recommended that the board seek to terminate the shareholder’s proprietary lease because of his “objectionable conduct.” Legally, the board could do so if the shareholder or occupants of the apartment repeatedly violated the house rules or the shareholder was deemed a person of dissolute, loose, or immoral character.
 
In this particular co-op’s proprietary lease, the board was allowed to terminate the lease based on the shareholder’s objectionable conduct, as opposed to other leases that require a vote of the shareholders. This did, however, require strict compliance by the board with the terms of the proprietary lease and the bylaws. Ultimately, a special meeting of the board of directors was called, at which the shareholder was given an opportunity to be heard and respond to each allegation of objectionable conduct. At the end of the meeting, the board voted on whether to terminate the proprietary lease. Ultimately, the shareholder agreed to sell the apartment and if it was not sold by a prescribed date, the shareholder agreed to leave and never return. The shareholder also agreed to and did repay the co-op for all legal fees expended.
 
Takeaway
 
When a shareholder repeatedly violates the co-op’s house rules and other governing documents (provided they are significant violations), boards should consider taking an aggressive approach by availing themselves of the provision entitling the co-op to terminate the lease. This approach will force the shareholder to resolve the matter or face eviction.

Read more