NEW YORK CITY

Bamboozling transfer agents: six attempts. This year, I have seen a record number of attempts to bamboozle transfer agents. Attempt number 1: a shareholder whom we’ll call Amy (all names here have been changed) produced a power of attorney allowing her to transfer an apartment from boyfriend Bob to Amy, without disclosing that Bob was dead and had living relatives/beneficiaries. Attempt number 2: Cindy, the executor of her mother’s estate, sought to transfer the lease and shares to a trust to permit Cindy to live in the apartment without disclosing that her sister, Daisy, had equal rights to inherit the apartment but would receive no benefit from the apartment while Cindy lived there. Attempt number 3: Ed, the beneficiary of decedent Fred, sought to sell an apartment without revealing that the federal government had filed tax liens against Fred in Florida, where Fred had lived in the last years of his life. Attempt number 4: Helen wanted her ex-husband, Ira, removed as a co-owner of their co-op. George, Helen’s lawyer (and also her father), claimed that Ira had consented to the transfer of the apartment to Helen but was not willing to sign any documents. Attempt number 5: Karen wanted the apartment transferred to herself without any documentation from her ex-husband, Larry, because, according to Karen’s attorney, photocopies of 40 pages of court documents “clearly” showed that Karen would be entitled to the apartment. Attempt number 6: Linda, the court-appointed guardian for her mother Mary, sought to transfer Mary’s apartment to Linda to reduce Mary’s assets to qualify for Medicaid, even though the powers granted to Linda under the guardianship were limited to providing for support of Mary, and contained no legal authority to dispose of Mary’s assets.

Takeaway

If any of these transfers had been carried out as requested, the co-op could have been subject to thousands of dollars of valid claims from other parties. Each of these cases involved buildings I represent and none of the transfers were done as requested because I have successfully trained managing agents to recognize that any transfer involving a decedent’s estate, trust, power of attorney, divorce, partnership, corporation, LLC, or other entity form of ownership, or in any other way “unusual” must be handled in conjunction with me as the building’s attorney. I have established a complete set of requirements for each of the described types of transfers: executors must have explicit probate court authorization to sell; federal and state waivers of estate tax liens must be produced, and legal opinions must be rendered by counsel for estates, trusts, LLCs, and other entities. All affected parties not present at closing must be adequately represented by counsel and all documents must be reviewed by me. The cost of the review and the transfer agent’s usual fees are paid by the party involved. Result: the co-op is protected against possible scams.

No matter your nationality or ethnicity, you probably love the way your traditional comfort foods smell. But what do your neighbors think? Ronda Kaysen's latest Ask Real Estate column deals with a neighbor complaining about the nanny's love of cooking with the door open. "We have been plagued by cooking smells coming from the next-door neighbors’ apartment. ... Our apartment gets the brunt of it. Our master bedroom is impossible to sleep in. Apparently other residents have complained to the management, but to no avail. I doubt the owners are even aware of the issue. ... Do we have any recourse in this matter?" Kaysen has a few options for the condo owners, but points out that the writer should expect to talk to the board.

I recently represented a purchaser of a high-end prewar co-op apartment who intended to perform substantial alterations, especially to the kitchen and bathrooms. The co-op’s alteration agreement was 25 pages long with 27 additional pages of exhibits, prepared by an experienced co-op counsel over the years. Unfortunately, it had several clauses in different parts of the agreement that were not necessarily consistent and did not address the vagaries of who was living underneath the apartment being renovated or the way the building was originally constructed.

As work proceeded, numerous complaints were received from the owner of the apartment below the one being renovated. He claimed that he was being disturbed by “noisy work” being performed prior to 9 A.M. and after 3 P.M., as prohibited under the alteration agreement. The constant complaint of noisy work became a bone of contention, especially since the occupant of the apartment below worked at home and was a former officer and director of the co-op.

Because of the way the building was originally built, there also were pipes and supporting beams below the bathroom floors that the co-op said had to be replaced as part of any bathroom alteration. This, too, created an issue concerning how to address the noise being generated from this work. An additional factor that was not considered was how to address the extra time required on work that effectively was structural or replacement work. The co-op put a six-month time limit during which all work had to be performed.

Individuals purchasing apartments who intend to do major renovations must be aware of the co-op corporation, the work being performed, and the potential complaints from other unit-owners, especially those who work from home.

Takeaway

The owner of an apartment should communicate not only with the board but also the adjacent unit-owners to make sure that there are no unforeseen issues that would either affect when work can be performed or what issues might arise during the course of the renovation. In this case, since the alteration agreement did not spell out what was considered “noisy work,” it became apparent that operating power equipment or even vacuuming bare floors could be considered noisy work.

Failure to amass a quorum at an annual meeting is hardly a unique occurrence. However, a board’s repeated inability to achieve this threshold throughout a number of years can adversely affect a building’s operation. Without a quorum, no election or other shareholder/unit-owner vote can be held. The then-serving board remains in office independently without the blessing of its constituency and no vote upon a proposed governing document revision, however essential or desirable, can be conducted.
One condominium board was so vexed by its failure during a five-year period, despite strenuous efforts at proxy solicitation to achieve a quorum, that it requested a meeting to “brainstorm creative methods” to obtain this result. I suggested a raffle with the prize being two months’ worth of common charges. Only those voting in person or by proxy would be eligible to participate. To avoid any accusation that condo funds were being used to elicit additional proxies to stack the election in favor of the “management slate,” I utilized a directed proxy form whereby the issuing owner specifically instructed the proxy-holder as to which candidates he must vote. I also provided an option to instruct the proxy-holder to vote for quorum purposes only. In this manner, the proxy-holder, even if he were supporting the “management slate” did not have the power to vote his own preference but was required to adhere to the issuing unit-owner’s voting instructions.

I issued a formal legal opinion that this process was entitled to protection from the Business Judgment Rule and was not vulnerable to legal challenge. That’s because it’s not inconsistent with the condo’s bylaws, and is not otherwise illegal, not a breach of the board members’ fiduciary duty, and it served the valid communal purpose of facilitating democratic board elections.
We achieved a quorum with 62 percent of the condo’s common interest voting at the 2015 annual meeting, and a new board was elected.

Takeaway

When confronted with a seemingly intractable legal problem, look beyond the confines and limitations imposed by legal doctrine and go outside the box for novel but practical common-sense solutions. More often than not they exist and are just waiting to be discovered.

Last winter, we had lots of snow. Snowblowers were used a lot. Most snowblower manuals say that maintenance is required after every 25 hours of use. But that varies. A machine can be used for several years without receiving maintenance. Then, after 200 hours of use, it may need to be repaired. The cost to do so can be a whopper.

Many co-ops try to avoid large repair bills. Here are some tips for the care and feeding of your snow blowers - ways to save you money and avoid delays by having your staff do it rather than send it to the shop.

Everyone likes watching fish, right? They can be elegant and exotic, and quite beautiful too. The Real Deal reports that custom-made aquariums are turning up more and more as fixtures in the homes of the well-to-do in South Florida. While we haven’t heard of any such sightings in New York, the story gave us an idea. Why not add an aquarium to your lobby? In the fight for curb appeal, it could certainly make your building stand out from the pack. The prices range from about $5,000 for a 10-gallon tank to $1 million and more for a tank holding 5,000 gallons of water. And you can get even more elaborate in your lobby redesign. For $40,000, London-based Aquarium Architecture will sell you a 1,057-gallon garden equipped with LED lighting that actually simulates sunrise and sunset, which is said to decrease stress for certain types of fish. No report on what it does to humans or resale value.

 

Airbnb rentals have become ubiquitous in cooperative and condominium settings. Not only are short-term stays illegal under New York law, which prohibits the rentals of Class A multiple dwelling apartments for periods of fewer than 30 days, but such rentals also represent a violation of most cooperative and condominium policies. We worked with a number of boards to develop multifaceted approaches to address this issue.
Management was instructed to monitor websites to identify potential violators. Doormen and concierges were reminded of their security duties and advised of the board’s determination to discipline employees who were complicit with violators. New security measures were implemented, such as installing key-fob or biometric entry systems and creating visitor log books. Security cameras were strategically placed throughout the building. Memos were sent to residents advising them that short-term sublets are illegal.
Since short-term rentals are often incapable of legal review – by their very nature they usually end before any cure period afforded under corporate documents has run – resolutions were adopted in cooperatives to declare any repeated conduct objectionable. This would entitle boards to terminate a proprietary lease upon the occurrence of multiple violations without the opportunity to cure. Where warranted, legal action was taken and upon a successful outcome, broadcast to all residents of the building.

Takeaway

Dealing with Airbnb issues is no different from dealing with most of the other governance issues that boards must address. When there is a threat to the overall purposes under which a cooperative or condominium was founded, boards must not only be reactive, but also proactive in their approach. Existing systems, policies, and practices must be carefully analyzed and critiqued. With the advice of the building’s professionals, boards must close loopholes, explore newer methods, take advantage of technology, and build better mousetraps to effectively deal with violators. To maintain control of a cooperative or a condominium requires that it be carefully and constantly monitored and managed. Perhaps the most important aspect of governance is frequent and effective communication with owners as most of them will toe the line if they are kept in the loop, properly educated and informed of the board’s rationale for its policies.

A common business issue in the world of cooperatives is that of the historic low interest rates being offered on underlying mortgages and the impact these can have on the financial health of the cooperative corporation. Our firm represented many cooperative corporations during the last year in the refinancing of their underlying mortgages. In this era where doom and gloom are front-page news, the historic low interest rates have provided our clients with infusions of cash, allowing them to effectively avoid maintenance increases and assessments. The key to a successful refinancing is when the cooperative corporation can maintain the same or lower monthly debt service on its underlying mortgage and pull cash out of the new loan. This can be done when the old loan is at a higher interest rate than the new loan. This is often the case when the old loan was secured at a time when interest rates were much higher than the current environment. The new money is then placed in the cooperative’s reserve fund and can be used to fund important and necessary capital improvements without the need of raising maintenance or assessing the shareholders. We have seen our clients use the money to renovate their lobbies, repair or replace their roofs and windows, convert their boilers, and do Local Law 11 work. One thing this new money should never be used for is to balance the operating budget. These funds are an available asset to the building and should be used to increase the value of the building and enhance its physical state.

Takeaway

The board of your cooperative corporation should carefully review the existing mortgage terms. Even if the term of the mortgage is not yet due and there is a prepayment penalty, the refinancing may still be a viable tool to enhance a building’s financial standing. We had several situations where boards did not think their co-ops were candidates to refinance their underlying mortgages. However, once they reviewed the numbers in greater detail, they realized that the refinancing was in the best interests of the cooperative corporations. Interest rates will not stay this low forever and your board should look into taking advantage of these historic low rates.

We have been working with the boards and owners of several co-op and condo buildings about selling apartments at a premium to a developer. The developer is interested in either demolishing the buildings and constructing new ones with more amenities so he can sell condominiums at current higher prices or doing gut renovations of the buildings and selling new apartments. In some instances, an investor wants to own the ground floor retail space, but does not want to deal with the co-op structure. In other situations, retail space may not be permitted in a building because of zoning laws. Negotiating the price becomes the easy part; the more difficult aspects are the tax consequences and the manner in which the funds will be divided among the owners. Co-op and condo documents usually require funds to be divided by the number of shares or percentage interest that each owner has — although that may not (and frequently does not) reflect the fair-market value of the apartments.

Takeaway

Such deals require a certain degree of finesse to address the tax and allocations issues. But there is also the matter of greed among some residents. We have seen situations where owners who are getting more than the value of their apartments say that, because they just bought a new refrigerator, they want a premium over other similar apartments. And, of course, there are residents who think that if they say no, they can make a better deal. Sometimes they can, but usually, they make the deal unaffordable for the purchaser so it falls through. Fortunately, there are ways to deal with unique issues that result in a win-win for both the shareholders/unit-owners and the purchaser.

Watch out — more shots have been fired in the battle between boards and Airbnb.

According to BrickUnderground, San Francisco residents recently voted against a measure that would have changed the way Airbnb operates within the city. The proposition "would have cut down the number of days allowed for a short-term when the primary resident isn't present from 90 days per year to 75. ... Prop F also would have required that hosts give proof of the apartment's authorization for short-term rentals, and submit quarterly reports." The interesting twist is that this doesn't necessarily mean that the citizens of San Fran are coming around to Airbnb — BrickUnderground points out that the result could very well have been the due to the $8 million that Airbnb put towards its anti-Prop F campaign. So, the question for boards is now: will Airbnb take aim at New York City? And more importantly, will they prevail?

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