LEGAL/FINANCIAL

Watch out — more shots have been fired in the battle between boards and Airbnb.

According to BrickUnderground, San Francisco residents recently voted against a measure that would have changed the way Airbnb operates within the city. The proposition "would have cut down the number of days allowed for a short-term when the primary resident isn't present from 90 days per year to 75. ... Prop F also would have required that hosts give proof of the apartment's authorization for short-term rentals, and submit quarterly reports." The interesting twist is that this doesn't necessarily mean that the citizens of San Fran are coming around to Airbnb — BrickUnderground points out that the result could very well have been the due to the $8 million that Airbnb put towards its anti-Prop F campaign. So, the question for boards is now: will Airbnb take aim at New York City? And more importantly, will they prevail?

Photo credit stigmatize / Shutterstock.com

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A common business issue in the world of cooperatives is that of the historic low interest rates being offered on underlying mortgages and the impact these can have on the financial health of the cooperative corporation. Our firm represented many cooperative corporations during the last year in the refinancing of their underlying mortgages. In this era where doom and gloom are front-page news, the historic low interest rates have provided our clients with infusions of cash, allowing them to effectively avoid maintenance increases and assessments. The key to a successful refinancing is when the cooperative corporation can maintain the same or lower monthly debt service on its underlying mortgage and pull cash out of the new loan. This can be done when the old loan is at a higher interest rate than the new loan. This is often the case when the old loan was secured at a time when interest rates were much higher than the current environment. The new money is then placed in the cooperative’s reserve fund and can be used to fund important and necessary capital improvements without the need of raising maintenance or assessing the shareholders. We have seen our clients use the money to renovate their lobbies, repair or replace their roofs and windows, convert their boilers, and do Local Law 11 work. One thing this new money should never be used for is to balance the operating budget. These funds are an available asset to the building and should be used to increase the value of the building and enhance its physical state.

Takeaway

The board of your cooperative corporation should carefully review the existing mortgage terms. Even if the term of the mortgage is not yet due and there is a prepayment penalty, the refinancing may still be a viable tool to enhance a building’s financial standing. We had several situations where boards did not think their co-ops were candidates to refinance their underlying mortgages. However, once they reviewed the numbers in greater detail, they realized that the refinancing was in the best interests of the cooperative corporations. Interest rates will not stay this low forever and your board should look into taking advantage of these historic low rates.

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When you consider the amount of money that people stand to make by renting out a room in their apartments, you can understand why so many co-op and condo boards have to handle shareholders and unit-owners who want to get in on some Airbnb action. Many of them may ask, "Hey — if my building allows sublets, I can sublet for short stays, can't I? And since the law allows roommates, why can't I rent out my spare bedroom by the day, week, or year?"

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A small co-op loft building discovered in the course of its latest Local Law 11 cycle that the top-floor loft-owner had made alterations to the roof without the board’s knowledge or consent and without Department of Buildings (DOB) filings. There were several code violations and serious safety issues. To complicate matters, the top-floor loft-owner is the former individual sponsor of this downtown conversion in the early 1980s, when downtown was the “Wild West” concerning lack of required DOB permits, and who secretively managed the affairs of the building for many years post-conversion. Given the passage of time, it was difficult to obtain a consensus about what happened when. The building is in serious negotiations at this time and hopes to resolve all issues without spending years in court.

Takeaway

Many buildings continue to struggle with the existence of unauthorized and non-permitted alterations. It behooves board members — and in small buildings, the unit-owners — to regularly inspect all areas of the building to determine whether modifications to the building are safe, and that proper DOB permits are in place. Boards should not rely on just one person to do it. Potential building liability is too great to let this go.

Steven Troop is a partner at tarter Krinsky & Drogin.

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A large former Mitchell-Lama cooperative went through a series of highly contested elections in which a small and vocal group of dissenters made a number of accusations regarding current and elected board members. After an election in which none of the dissident candidates won seats, the attacks continued and began to include personal diatribes about board members and derogatory comments about the cooperative and its operations.

The dissenting shareholders created a website that contained the name of the cooperative. The attacks on the co-op and its board members continued and became much more personal. After a particularly vicious set of postings that questioned the operation and honesty of the board and management, the cooperative was compelled to start litigation to shut down the website and pursue libel and slander charges.

The problem, of course, was that, although the actual individuals were known, many of the postings were anonymous. In response to the lawsuit, the dissidents were able to interest a large law firm in representing them, pro-bono, based on freedom of expression issues. That firm moved to dismiss the action. The court held that board members are not public figures and are entitled to protection from anonymous attacks, and refused to dismiss the proceeding. The court based the decision primarily on the fact that the website in question was open to the general public and was not limited to shareholders of the cooperative or in any way password-protected. The legal action is continuing; however, the number of negative posts has decreased substantially.

Takeaway

The case brings to the legal forefront a growing concern for all cooperatives: their online reputations. More and more cooperatives have their own websites whose access is limited solely to shareholders or other authorized users — password-protected pages. But unauthorized websites have flourished as well. The internet, despite all its positive features, has also created a forum where a small minority can broadcast negative and derogatory information about cooperatives and their boards to a large audience, which in turn can negatively affect the cooperative and the value of apartments. It is our experience that more boards are beginning to attempt to defend themselves against these types of attacks. In turn, the issue is becoming more prevalent and we expect further litigation that will eventually produce case law governing on what is acceptable behavior on websites affecting cooperatives.

Dean M. Roberts is a partner at Norris McLaughlin & Marcus.

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A unit-owner had installed a nonconforming window and resisted the condominium board’s attempts to have the violation corrected. The level of obstinacy was unusual and ultimately resulted in fines and years of litigation. After motion practice, depositions, document discovery, and the unit-owner’s attorney changes, a trial finally took place. The court, as had been expected, ultimately ruled in favor of the condominium and ordered that the affected window be restored. However, the unit-owner, who was representing herself by that point, steadfastly refused to follow the court’s directions and eventually, after additional proceedings and hearings, was held in contempt of court. In the end, the violation was cured.

Takeaway

This very unusual situation shows how courts will generally uphold the covenants in most condominium bylaws against exterior alterations. It also reflects the difficulties and resistance boards may encounter in trying to enforce such covenants. When encountering violations of exterior alterations, condominium boards should be aware that although courts will usually rule in favor of the board, the effort can be time consuming and expensive and a favorable ruling may still be difficult to enforce. With that in mind, condominiums should consider amending their bylaws to provide for the reimbursement of attorneys fees to the prevailing party for non-monetary bylaw violations.

John J. LaGumina is a partner in The LaGumina Law Firm.

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Co-op and condo boards are often so busy running their buildings that they fail to reach out beyond their immediate world. Yet boards and their counsel would be well served by developing a relationship with local elected officials — particularly city and state legislators. That point was brought home recently for some of our clients. 

For several years we have been assisting several co-ops in residential neighborhoods to try to curtail commercial – and, consequently, incompatible — businesses in their midst. We have reached out to local elected officials on behalf of our clients and, on a number of occasions, we have met with those officials and our clients. 

In one particular situation, a business operator that had lost in court appealed to the state legislature on repeated occasions to be allowed to operate as the owners wished. On each occasion, the community was successful — with the help of elected officials — in stopping this effort. Most recently, on the very last day of the session in Albany, we were notified by one of the state legislators who knew us that a "private" bill had again been "sneaked in" for the benefit of this business operator. 

Had this legislator not been aware of the community's concerns, and had we not established a relationship with this legislator, we would not have been notified. And, in all likelihood, given the vagaries of Albany at the end of session, this bill would have been enacted without scrutiny, to the serious detriment of the community. Given advance notice — albeit only a matter of hours — we were able to launch a telephone campaign to shed light on what was happening and to prevent the bill from being enacted.

Takeaway

The time we spent in getting to know the relevant legislators reaped significant rewards. In other cases, rewards may not be as momentous as being able to stop legislation in its tracks, but building a relationship with elected officials can help in a variety of ways. It does not take much time to develop these relationships, and it is definitely time well spent.

Phyllis H. Weisberg is a partner at Montgomery McCracken Walker & Rhoads.

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Where there is opportunity, there are opportunists. The insurance industry — and the public adjuster business — is no exception. In 2014, after a string of cases where rogue public adjusters scammed homeowners by steering them to use contractors with whom they had undisclosed relationships, New York State passed legislation intended to end dubious connections and financial arrangements.

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It's no secret that the world of New York City real estate is a complex one. It's kind of incredible that there's so much construction happening everywhere you look —considering that, oftentimes, plans can take a long time to finally come into fruition. Take the redevelopment of the American Bible Society at 1865 Broadway, for example. The concept that YIMBY featured in early 2014 fell through. But now it looks like things are starting to move forward again. YIMBY explains that "Skidmore Owings & Merrill has been tapped to design the project, and thanks to a tipster’s submission of diagrams for the project, [YIMBY was] able to create renderings that are a close approximation of what the building will ultimately look like." Check it out. Provided these latest plans don't fizzle out, when the tower is completed, there will be 26 condos for the taking, "all either two or three bedrooms besides a 4,000-square-foot four-bedroom unit on the penthouse level."

Rendering by New York YIMBY 

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A father and his daughter owned a cooperative apartment. The father died. The daughter remained in occupancy, but maintenance payments fell into arrears. The board of directors wanted to initiate legal proceedings. It turns out that the deceased and his daughter owned the shares as tenants-in-common. That means, among other things, that ownership of the shares and lease did not pass directly to the daughter. So, legal proceedings had to be started against the daughter and the executor of the father's estate.

The corporation obtained from the court a judgment of possession and a warrant of eviction against the daughter and the executor. The daughter asked that enforcement proceedings be delayed to sell the unit. The board gave her an extended period of time for this to happen, but it did not. A contract of sale was prepared but was not joined in by the executor, so ownership could not pass. The board is proceeding with its eviction and foreclosure of the cooperative apartment.

Takeaway

The lesson of this tale is that, when dealing with an apartment sale, boards and their transfer agents should be more astute about the manner in which the title is held. If they aren't diligent, they can get into complicated estate issues such as this. The way ownership of a cooperative or condominium is held is important. This is particularly so when the co-owners are of different age brackets or life expectancies, or have different relationships. In any event, ownership as a tenant-in-common, as in this case, caused the father's shares to pass through his estate and not directly to the daughter. Whether this was really the father's intent will never be known. If the shares had been listed as joint tenants with right of survivorship, the daughter would have been the sole owner at the time her father died. Boards should advise owners of jointly owned residential community associations to review their estate plans in general, and their form of unit ownership in particular.

Lewis Montana is a principal attorney at Levine & Montana.

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