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Found in Yonkers: A Co-op Using Arbitration to Pursue a Bad Contractor

Bill Morris in Legal/Financial on April 8, 2014

293 North Broadway, Yonkers, Westchester County

293 North Broadway, Yonkers, N.Y. Photo by Jennifer Wu for HABITAT
April 8, 2014

John Kolenda moved into 293 North Broadway in 1999 and realized, before long, that the place had problems. The brick-and-masonry building, with its Tudor detailing and a crenellated parapet, was built in 1929 and converted to a co-op in 1971. Kolenda, a real estate attorney, became aware that there were persistent leaks in at least half of the apartments, and that the co-op's finances were in bad shape as well.

The root of the problem, as he saw it, was that the board was unwilling or unable to raise the necessary money for overdue repairs. At the time, the association was dominated by a president who had been in power for nine terms. Kolenda thought of him as "the king of the co-op" and decided things had to change.

So Kolenda mustered a team of shareholders who shared his concerns, and in the summer of 2007, the group mounted a campaign to wrest control of the board. They won a majority of the nine seats available at the time, though the former president retained a spot. Kolenda became president.

A Tragedy of Errors 

Now came the hard part. The board hired an engineer it declined to name to do a building-wide survey. He found many errors in the previous engineer's report, as well as disturbing infrastructure problems: The roof was leaking; shoddy repair work on many window lintels was causing additional leaks; masonry needed repairs; and sections of the parapet were crumbling. The estimated cost of the work was $1.2 million. But the co-op had no capital reserves. One obvious source of fresh funds — refinancing the mortgage — was not on the table because the co-op was locked into a long-term mortgage that had a $250,000 prepayment penalty. The board was painted into a corner. 

"An assessment would have been prohibitive, so we had to pay that penalty in order to be able to refinance the mortgage and move ahead," Kolenda says. The board swallowed hard and did it — while raising maintenance by 30 percent. 

Bids were solicited, five contractors responded and the board, also declining to name the company, chose an outfit from Brooklyn. Work began in 2008 on a job that was projected to take one year. When the job stretched into 2010 and the costs kept going up, the directors grew alarmed. As usual, there were some unpleasant surprises, such as the discovery that the entire parapet had to be replaced instead of certain sections of it. Other deterioration was uncovered as the work progressed. The board called in its engineer to assess the contractor's performance. 

"The contractor is based in Brooklyn, and we're in Yonkers," says Kolenda. "It's an hour or more each way. In my opinion, the supervisor assigned to the building was not here often enough. There just wasn't enough oversight."

Errors or Fraud?

It got worse. "In the spring of 2010, we discovered they'd been overcharging us for work they did do and charging us for work they didn't do," Kolenda says. So the board had its engineer do a complete audit. All the errors found were in the contractor's favor. "There was a definite pattern," Kolenda adds.

After firing the contractor, the directors brought in a replacement to finish the job. The original contractor promptly put a mechanic's lien on the property to collect money he claimed he was owed. The board countered that the contractor owed the co-op.

This is where the matter stood when it went into arbitration. Construction contracts typically follow a template supplied by the American Institute of Architects, which includes "dispute resolution" provisions. Based on the advice of a board's attorney — who takes into account factors such as the cost and complexity of the job — these provisions will guide a board as it works to resolve disputes.

The Yonkers co-op wound up carrying the day — sort of. In the summer of 2011, two years after the repair job was supposed to be completed, the arbiter from the nonprofit, New York City-based American Arbitration Association (AAA) awarded the co-op $230,000, about two-thirds of what it had sought. It wasn't everything, but it was better than nothing. When the contractor wouldn't pay up, the board wound up going to court anyway, but converting the award to a legally binding judgment is easier than litigating the whole issue from scratch.

Nearly two years after firing the contractor, the cooperative finally collected its money. The repair job itself was completed in the spring of 2011.

 

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Photo by Jennifer Wu. Click to enlarge.

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