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Carol Ott: Welcome to Legal Talk, a conversation about governance issues that New York's co-op and condo boards are tackling today. I'm Carol Ott with Habitat, the New York City magazine for co-op and condo board directors. My guest today is Leni Morrison Cummins, a partner at the law firm Cozen O'Connor. If I buy a co-op apartment that comes with a kitchen renovated over a decade ago by owners thrice removed from me, what happens when a leak occurs? Who's gonna pay for the fix? Me or the co-op?
Leni Cummins: Thanks for having me, Carol. It's nice to be here. So what you're asking about is apartment alterations. Who is responsible for repairs to the actual altered space in the kitchen and what happens if there's a leak that affects other units or common areas? This is a common problem in both co-ops and condos.
When a co-op shareholder is going to do an apartment alteration, they should be seeking approval from their board. Proprietary leases typically require such approval in order for a shareholder to do work. And co-ops generally require an alteration agreement, which is an agreement that changes the legal obligations between the shareholder and the cooperative board.
Typically, without an alteration agreement, the proprietary lease governs. In most instances, that puts common area repairs and even to some extent, unit repairs, on the responsibility of the board. However, in an alteration situation, it shifts the burden and shifts the responsibility onto the cooperative shareholder who's doing the actual work to both maintain and repair the alterations.
In the example that you asked about, which is an awning on a terrace. If it is governed by an alteration agreement, that means that the work for the installation of the awning would've been previously approved by the board, typically with an architect or engineer even reviewing the drawings beforehand and making sure that it's not gonna cause damage and that it's safe. Particularly awnings can be an issue with wind and elevation.
And what happens is if there is damage to the actual awning or to the building, the alteration agreement would require the shareholder to be responsible for all of the cost of repairs and maintenance. But without it, it's going to end up likely on the board.
Carol Ott: So if there was a properly executed alteration agreement, does it, does that extend to future owners? So I'm gonna look at this person with the awnings and if those awnings had been installed by owners, three owners back, and I've bought the apartment is, where is it that says it's my responsibility?
Leni Cummins: Well, that will depend on the alteration agreement and also on the practices of the board and its managing agent.
The alteration agreement that we recommend at Cozen O'Connor includes something called an assumption agreement, so that if a shareholder does work and they sign an alteration agreement and then they sell their unit, the new purchaser has to sign the assumption agreement, taking on all the obligations under the alteration agreement. So that way, thrice removed or not, that alteration agreement is going to govern what happens when there's an issue with that awning.
Carol Ott: So who in this chain brings up this assumption agreement? Now, I bought this apartment and let's just say this awnings was, a decade ago. Am I gonna remember to tell my attorney?
Or is the board gonna remember? Or the managing agent? Who, where is this flagged that this new person has to sign this assumption agreement?
Leni Cummins: Carol, you're touching on one of the biggest problems that I'm finding in many of our buildings, which is record keeping. So if you are the shareholder who's selling, you're likely not raising your hand to say, oh, don't forget, my new buyer that I'm trying to market my unit for the best price--
you need to sign that you're taking on additional liability. They're not gonna be the one that raises their hand. It's really on the board and their managing agent to remember and to keep the records so that way when it comes time for there to be a closing, that assumption agreement is signed. And that's typically easier in a co-op where the managing agent is often the transfer agent.
Hopefully they have good records and they can be there at the closing table to make sure that's signed. In a condominium, it's a little harder because there is no transfer agent, but in either case, it really is the property manager's responsibility to maintain the records of the condo or co-op and to flag that at the time of closing or before.
Carol Ott: That gets flagged at every sale of this apartment?
Leni Cummins: Forever and ever.
Carol Ott: And in, in terms of New York's management industry, is that commonly done?
Leni Cummins: It's a hard question to answer, Carol. Unfortunately, problems usually are what comes to me, right? The ones where it's done properly, I, no one's calling their lawyer.
It's usually when, oh my God, there is a leak, what do we do? And we couldn't find the assumption agreement. Now does the board and then all of the shareholders have to pay for the damage? Or can we put it back on that shareholder? And it comes down to where was the alteration agreement? We know one was signed.
Where's the assumption? Was it ever signed? And the people are looking back in their emails, managing agents are looking. But oftentimes, the individual managing agents change over time. The companies change over time. There's mergers of management companies, and unfortunately, more than not, there are issues in that sort of chain of record keeping.
Carol Ott: And if nobody can locate a signed assumption agreement, does that let the shareholder whose apartment is causing the problem off the hook?
Leni Cummins: That'll depend on the language in the proprietary lease or bylaws, but it oftentimes will let them off the hook because then you'll be governed by the proprietary lease or bylaws, which, especially in a co-op, oftentimes put a lot of the responsibility for maintenance and repair on the board.
Carol Ott: So to bottom line this, what's your takeaway for boards regarding this alteration responsibility? What should they make sure is happening or keep top of mind?
Leni Cummins: Record keeping. That's the name of the game. And just being mindful that when there's going to be a closing to make sure that the assumption is signed.
Whenever I'm involved in an alteration agreement or a closing, I make sure to highlight it. But so many times attorneys aren't needed for closings or alteration agreements, but it should be on a checklist somewhere. And whether that's the board thinking about it during the interview or just having a general best practices for the building.
It really is something that could save a board and its shareholders thousands if not millions of dollars.
Carol Ott: Okay. Thank you very much Leni. This was really insightful. Thanks.
Leni Cummins: Thank you for having me, Carol.

Leni Morrison Cummins, Partner, Cozen O'Connor

Letter of the law. When shareholders want to do alterations in their apartment, co-ops typically require that they sign an alteration agreement. Doing so ensures that the responsibility for any maintenance or repairs relating to the alterations becomes the shareholder’s responsibility. But if that shareholder sells her apartment, the future owner may not be aware of these alterations, or really any alterations made by previous owners. To ensure that buyers take responsibility for these, and all, alterations, purchasers should be required to sign an assumption agreement either before or during the closing.

Apartment sellers, however, aren’t likely to raise their hand and tell a buyer that they’re taking on an additional liability. It’s really on boards and their managing agents to ensure that an assumption agreement is signed every time a unit is sold so that all future owners, whether once, twice or thrice removed, agree to take responsibility for alterations done by every previous owner.

Paper trail. You need to keep track of these assumption agreements, because if and when a problem arises, it will help distinguish who is responsible for the repair. Being meticulous with your documents is a must, which can be a challenge. Managing agents change over time, companies change, there are mergers of companies, and more often than not there are problems in the chain of record-keeping. If there’s a building leak and you’ve lost the signed assumption agreement, the proprietary lease often puts the responsibility for repairs on the board, which means you — and by extension your shareholders — will have to pay for it. 

When there’s going to be a closing, make sure that the assumption agreement is signed. Attorneys aren’t always involved in these closings, and don’t often review alteration agreements. But getting an assumption agreement signed needs to be on someone’s checklist. It really is something that can save a board and its shareholders thousands, if not millions of dollars.

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