Lewis Montana, Partner, Levine Montana in Legal/Financial on October 26, 2023
Being prepared for flooding in New York City is more critical than ever. Now, a new state law requires landlords, including co-op boards, to provide tenants with comprehensive information about their building's flood risk by fully disclosing the property’s flood history and telling shareholders whether they have access to flood insurance from the Federal Emergency Management Agency (FEMA).
Disclosure requirements. Co-op boards must piece together historical flood information and disclose to shareholders whether a property is within a FEMA floodplain. The information must outline whether the building is in a special flood risk area, which is a 100-year floodplain, or a moderate risk flood area, which is a 500-year floodplain. Co-op boards must also inform shareholders whether there has been any flooding at the property. This data can be sourced from corporate records, previous insurance claims, FEMA records, and even the collective memory of long-standing board members. Relevant information might include details of historical water damage from river overflow, excessive rainfall, storm surge or tidal inundation. The law primarily covers natural flood events, so water damage related to a burst pipe or leaking roof is not covered by this statute. Another requirement is the disclosure of a shareholder’s access to flood insurance through FEMA.
Compliance challenges. Compiling historical flood information is a formidable task, especially for older properties. A further compliance issue is whether the proprietary lease needs to be amended to incorporate these new disclosures. Legal opinion varies on this: Some attorneys believe co-op boards can simply insert the new requirements into the lease, while others insist a lease amendment must be approved by a supermajority vote from shareholders. Some boards have been proactive and successfully amended their leases. For example, one co-op board that suffered damage during Hurricane Ida, swiftly adopted a resolution to amend the proprietary lease during their annual meeting. Another sought to hold a special meeting for this purpose rather than wait for the annual meeting. However, not all co-op boards have found success when seeking shareholder support for these amendments.
Consequence of noncompliance. The consequence of not complying with the new law varies between county and state. The county law provides tenants and tenant shareholders with the ability to sue for damages if the information is not disclosed. However, the state law does not explicitly grant the same right to sue, leaving uncertainty about how courts might interpret this law. And while these requirements do not apply to condo boards, it’s worth pointing out that if a condo board owns a unit or two — perhaps through a foreclosure — and the apartments are rented out, then a disclosure would need to be made to the tenants.
To reduce liability and ensure compliance with the new flood risk disclosure law, boards should start gathering the relevant information and start seeking shareholder approval for a proprietary lease amendment during their annual or special meetings. If the necessary votes are secured, incorporating the new requirements into their leases can be achieved fairly smoothly. If not, the information needs to be included in new leases going forward. That way, boards can at least demonstrate a good faith effort to comply with the law.
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