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Doomsday Scenario! A Co-op / Condo Attorney Calls for Enlightened Legislation

Stuart Saft in Legal/Financial on May 24, 2012

New York City, New York State

May 24, 2012

If the state legislature fails to deal with this situation, co-op and condo boards eventually will be populated by owners who have little business or practical experience on which to base their determinations, because the owners who should be on the board will avoid it to shield themselves from lawsuits, liability, and aggravation. The price of housing will be stagnant because of the never-ending increase in maintenance and common charges caused by the costs of litigation, insurance, and the ever-increasing number and expense of governmental mandates and real estate taxes, the one form of tax that the city can raise without approval from the state.

Going to the Dogs

Meanwhile, quality of life will deteriorate, because the boards will have no control over who purchases or leases an apartment — and dogs will be everywhere, because everyone who wants one will find a doctor to write a note saying the resident needs a "comfort dog," thereby causing those people who are afraid of dogs, allergic to them, or who cannot stand the constant barking to move out of the city.

Since it might be discriminatory to forbid owners from piling on as much debt on their apartments as they want, there will be an increase in defaults. But since Housing Court judges don't want to evict someone when the board may have done something that is, in the judge's mind, objectionable, buildings will fall into disarray because the funds are not available to make repairs and replacements.

By then, the city will have also enacted several new local laws. Perhaps one will require that a tax be paid if the building uses too much energy.

Prevention, Not Cure

What to do prevent this? The initial step is to emulate what Florida, California, Texas and many other states have done: Enact a law that deals with protecting both owners and boards from second-guessing.

How? By detailed provisions relating to board elections and operations; annual and special meetings; books and records; the role of managers; the requirement that mediation and arbitration be required to resolve disputes and that litigation cannot begin until after certain required steps are taken; an expeditious way to remove troublesome owners from buildings; and ways of dealing with the myriad quality-of-life issues, including residents who refuse to allow needed repairs to be made.

Co-ops / Condos: Homes, Not Commercial Buildings

It also means establishing a meaningful real estate tax law where co-ops and condos aren't forced to deal with a Ponzi scheme each year: i.e., being compared to rental buildings and then having to prove that your garden apartment complex in Astoria is not worth the same as the Empire State Building. It means treating co-ops and condos as if they were single-family homes stacked on top of each other and not a different kind of rental building.

Finally, it is going to require a separate part of the court system to deal with co-op and condo issues, because regardless of the existence of the proprietary lease, these are not landlord-tenant relationships; co-ops and condos are more akin to partnerships.

As for me, I plan on spending the next three decades doing what I have been doing for the last three: trying to be part of the solution, not the problem.

 

Stuart Saft is a partner at Holland & Knight and president of the Council of New York Cooperatives & Condominiums

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