What is a working path for a board facing a majorly inconvenient project? Habitat talks to Eric Goidel, partner at Borah Goldstein Altschuler Nahins & Goidel.
Can you lay out a working path for a board facing this situation?
I actually had a recent situation where a new purchaser in a cooperative had just been approved by the board to do an alteration to her bathroom and kitchen. When things were taken down to the studs and the floors were removed, it was discovered that there was major deflection in the floor joists. The managing agent reported this to the board, and due to the age of the building, the board decided to be proactive and inspect all apartments in the building. An engineer determined that this was not a situation unique to this apartment but a chronic situation in the building. The floor joists were deflecting, so the floors were in danger of collapse in many of the apartments.
That would get your attention.
That got the board’s attention. The board’s next step was to decide what to do, because this project was going to take a significant amount of time, cost significant money, and involve a great amount of intrusion in the lives of shareholders. Also, there were out-of-pocket costs for relocation, where necessary.
That means what?
In most cases, shareholders had to vacate their apartments for approximately 30 days while work was being performed. When you're dealing with floor joists, you have groups of apartments that need to be dealt with at the same time. Four shareholders would be affected simultaneously.
So this was a matter of coordination. In addition, I assume, some of these shareholders wanted to be compensated.
Right. So this was unlike any other project I’ve ever worked on in the 37 years that I've been representing cooperative and condominium boards. First, we needed to get initial access for inspection of the apartments. And then, dependent upon the report of the engineer, we either needed to do no work, some minimal work that did not require vacating the apartment, or major work that required shareholders to vacate for a period of time.
Initially, the board considered compensating shareholders for hotel stays. But when they found out how chronic the problem was, they realized they would have to do an assessment and get the shareholders to pay for the hotel stays. If it had been only a handful of shareholders, that would have been a different story.
So the board decided not to compensate?
Correct. A few shareholders lawyered up, but the board was successful in almost all cases in avoiding compensation. The one person who did get compensated, though, was that shareholder who was renovating her bathroom and kitchen. She was out of her apartment for the better part of two years. She never slept a night in her apartment because she started the renovations right after closing. They call her Patient Zero.
In most cases, we had to fully destroy the bathrooms to get access to the joists and either fully replace them or marry a damaged joist with a new one. The board gave shareholders an option that we built into the contract with the contractor. We would restore bathrooms to what we'll call a builder's-grade condition in terms of appearance and fixtures. Then, built into the contract, there was an allowance so that if shareholders wanted to do their own work instead of paying our contractor for the work, we would give the shareholders the money that we would have paid the contractor. The shareholders could use that money to defray the cost of a more elaborate bathroom renovation.
So what is the takeaway for other boards who might be facing this?
The key to this process was communication with shareholders at every stage. They were made aware of the problem as soon as it was discovered, the need for access to their apartments to assess the situation, an explanation of the need for them to vacate, and then the rationale for why the board was not going to compensate – other than waiving maintenance while they were out of their apartment.
We also prepared what I’ll call vacate agreements, which shareholders were asked to sign, agreeing to vacate upon seven days notice so we knew we would have those four neighboring apartments available at any given time. There were a few shareholders who were unwilling to sign it, and in those few situations we actually had to serve notices to cure under the proprietary leases, pointing out that the board is entitled to get access to make repairs. Fortunately, those never wound up in the courthouse. After consulting with their own attorneys, they saw the light.