New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

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THE POWER OF THE ALTERATION AGREEMENT

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The Power of the Alteration Agreement

Apr 02, 2021

Leni Morrison Cummins, Cozen O'Connor

There have been many apartment alteration agreements signed and construction projects started pre-pandemic – and an equal number halted because of the pandemic. As you discovered with one of your buildings, rebooting them has been tricky. Can you tell us what happened?
We represent a condominium, a large condominium, in Chelsea. In that particular building, an alteration agreement was signed in January of this year for a 10-month alteration. The work commenced in January and when the pandemic hit and construction was halted, that alteration was also halted. The unit-owner obviously was upset about it, but everybody understood that work had to stop. Fast forward to June 8th, when construction was allowed to recommence. The unit-owner sent the contractor back to the building, but the super and the building staff wouldn't let the contractor in.

Was the unit-owner living in the building?
 
No. They had purchased an apartment with the intent to renovate, so they were paying for two places, in essence. The alteration was supposed to end in October, and that 10-month timeframe was needed by this unit-owner to get the renovations done. Clearly they had multiple months where they weren't allowed to work, and so they were behind schedule.
Is it typical in an alteration agreement that you have a time period?
 
Yes. There's always a term, or there should be. And this particular alteration agreement was one of the relics from the beginning of this building, from the inception. This was not the new revamped alteration agreement that's now widely accepted. Generally, the more modern alteration agreements do give more power to the boards to step in and control the alteration when problems come up. This particular alteration agreement was one of the older ones, which many buildings still use, and it really doesn't give enough power to the boards, especially to deal with a situation like this.
 
So the older ones have language that is more vague about what the board control is?
 
Right. It’s a two- or three-page agreement that doesn't really get into details of a board indemnity, board passing rules, and how it might become more onerous on the owner if the board changes its rules. So basically we're in a situation where the owner had more power than usual to kind of force their way in to restart the alteration as soon as New York City allowed alterations and construction work to recommence.
 
What did the board do?
 
The board was very concerned about contractors coming into the building for COVID-19 reasons, as were most boards in the city. This building wasn't allowing any work to start in June. In fact, they were banning dog walkers and delivery people from entering the building as well, so they weren't about to allow a construction crew to come in and out of the building all day. The owner hired an attorney to try to force the hand of the board, and the attorney made very valid points that while the board had some power, it did not have omnipresent power to say when anyone can come in and do work. So, here we were in a situation where we had to listen to the owner and work with them.
And where we found some leverage in this instance was the fact that they needed that 10-month time frame. The owner was going to need an extension from the board, and the board did have the power to deny additional time under this old alteration agreement. We went to the owner and said, "You're going to need this additional time. You're going to come asking for it. Let us work together to come up with a solution where the other owners in the building can feel comfortable with the construction work recommencing. And you'll get back that additional three months that you lost, and we'll extend the alteration agreement." So we created a rider to the alteration agreement that included compliance with New York State and New York City guidelines, the site safety plans, and also regulations regarding mask wearing, use of the elevators, when the contractors can and cannot access common areas to bring materials in and out. These were guidelines that would at least give the board and the rest of the unit-owners peace of mind that this construction is going to be safe for all the residents.
 
It doesn't seem like it's a stretch for everybody to want the guidelines to be followed. But I assume this places responsibility on the owner, so that if the guidelines are not followed, something happens.
 
Right. Generally, if you're talking about the New York State and the New York City guidelines, if the building is found in violation, then DOB will come and put a stop-work order on the building, and it's actually the building that will get a violation and potentially a very large fine. In another building in Midtown, we had that happen where it was actually the board that was allowing the construction to continue, and they received a DOB violation and a $5,000 fine. So it's the board, as the building owner in the eyes of the DOB, that would really be impacted.
 
In that particular building and therefore, I guess, in all buildings, a resident who is concerned would call DOB?
 
That's what happened. It was actually a renter, a tenant, in that condo, who called 311 and made a complaint because they didn't like the noise. And we didn't have the site safety plan, and the contractor wasn't up to speed on what they were supposed to be doing.
 
So it behooves the board to pay attention, since they're the ones who are going to get fined in this particular period, as opposed to the individual unit-owner.
 
Right. It's the board that needs to police its owners and the contractors that are working in the building to make sure that they're following all of the New York City and New York State guidelines.
 
And if the owner or the contractors don't do that, does the owner bear any responsibility?
 
Well, that's the perfect question because one of the requirements of the rider in that Chelsea building – and now in all alterations that start or recommence after COVID-19 –  we've put together a COVID-19 indemnification provision. So that if there are any violations or there is any liability related to the contractors or any of the work not complying with the New York State and New York City guidelines, as they may be changed from time to time, that unit-owner indemnifies the board for all liability and fines.
 
Which means if the DOB comes in and fines the building, the board will in turn go to this unit-owner and say, "You're going to have to give us the $5,000," or whatever it is.
 
Right. And we can draw down from the security deposit or the escrow that's posted at the beginning of the alteration.
 
Well, that would get your attention. In this particular instance, was the owner comfortable and willing to take this on, or was there some pushback?
 
The bottom line is that even with a less than ideal alteration agreement, the boards still do hold a lot of power. Unit-owners want their alterations to finish, and when they're not living in their unit and they're paying rent elsewhere, they want to get the board to agree to do the work. So, in this instance, while the attorney for the unit-owner was reluctant, they ultimately signed it to get the additional time to finish their work.
 
If I'm the unit-owner and I've signed this, do I then have to have legal agreements with the contractor as well? I mean, I'm not going to be there every day making sure all this stuff is happening. Is that how it works?
 
That's right. When they hire their contractor, each unit-owner signs their own contract, and it's their responsibility to then in turn go to their contractor and say, "Listen, there are these new New York City and New York State guidelines. I need to make sure that you're contractually responsible for complying with them." And in most instances, unless it's a basic proposal, any contract usually says that the contractors are required to follow New York State and New York City guidelines or rules. So that's probably already there. But there's probably not an indemnification provision where the contractor would be liable for the fine. So that would still fall on the unit-owner.
 
So really the indemnification is sort of the new COVID-19 flavor to these alteration agreements.
 
Well, there usually are very broad indemnification provisions that are already in these agreements, at least the modern ones. The ones that we draft and put together for our buildings do have a very broad indemnification provision. But these older ones are more limited, in some instances the provisions don't exist. But certainly you want to make sure that the indemnification will cover not only liability, but also breaches of New York State and New York City guidelines and the violations and fines that might spring from those. So, it's more of an expansion of what was already most likely in those agreements.

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