NEW YORK CITY

The financial impact of a lawsuit needs to be evaluated carefully by the board with its attorney and managing agent. It is better if a settlement can be achieved without suing. Drawn-out lawsuits can drain a building's budget, causing financial hardship, which could outweigh the benefits of any positive outcome. So choosing your battles wisely is extremely important.

That said, it is essential that the board, with the advice of its attorney and managing agent, enforce the rules and regulations. They should not allow adverse precedents to be set. Unresolved lawsuits can deter potential purchasers and lenders. Ongoing lawsuits can also pit neighbor against neighbor causing an uncomfortable environment.

Lawsuits against contractors can ultimately lead to positive results and, if provided in the contract, the recovery of legal fees. Again, the board should weigh the risk versus reward factor carefully and settle these disputes as quickly as possible. The success of this type of action is often dependent on having a good contract with your lawyer. Establishing a solid contract will save legal fees if work does not go according to plan and legal intervention is needed later.

Some lawsuits against a building cannot be prevented but can be covered by insurance: trip and fall (liability coverage), property damage (property coverage), discrimination (directors' and officers' coverage), and flood (flood coverage) where applicable. It is important that insurance coverage is maintained so that the potential financial impact is negligible.

Don Einsidler is president of Einsidler Management.

There are usually two reasons for an ongoing assessment. The first is to raise funds for capital projects or capital reserves. It is not unusual for a building to face more than one capital project in short order, or year after year after year. For instance, funds may be raised or otherwise available for a needed roof replacement but then the board learns that the heating plant will not make it through another winter, and, hey, the elevator controller is problematic, and replacement parts are no longer available.

Then, too, there are those buildings whose construction always means that each Local Law 11 cycle triggers yet another massive project. So the board must either borrow the money or assess over a protracted period of time to cover scheduled, anticipated, and unexpected capital projects. These assessments should be tracked by unit-owners/shareholders as they add to the cost basis of their individual apartments.

Then there are the boards that believe that their common charges/maintenance payments are higher than any similar building in the neighborhood and that this devalues the marketability of their apartments. To keep common charges/maintenance payments in check, some boards will keep running assessments on the books to subsidize operating costs rather than raise common charges/maintenance payments. The accountants call this "smoke and mirrors" and it is a ploy that is clearly evident to anyone reviewing a building's annual financial statements. This type of assessment does not add to the residents' cost basis.

Lori Buchbinder is a principal at Buchbinder & Warren.

We put in an offer for a condo apartment, and were told we had to go for an interview. I thought that was just for co-ops. What's up?

Although condominiums have fewer tools than do cooperatives in controlling their residents, they do have "the right of first refusal" when it comes to the sale of any unit in the building. This right is very rarely exercised, primarily because most condos lack the funds to buy at today's market rates, but if the board has serious concerns about a potential buyer, it has the right to buy the unit under the same terms to keep that buyer out.

A condo board is well within its rights to request an interview with any potential buyer to meet him or her, to see if he or she fits in well with the community, and to assess whether there are any glaring financial or personality issues.

As a potential buyer, it behooves you to meet your new board to give you the same peace of mind that they are seeking: that you feel comfortable spending a good part of your time in their midst over the coming years.

Because condos have less leverage over defaulting owners than do co-ops, they have good reason to be vigilant about screening incoming owners to be sure they can afford to live there, and that they intend to follow the bylaws, rules, and regulations of the condo. Once you are living in the building, you may decide to join the board yourself and help keep it running smoothly. Standing in a board's shoes, you are likely to agree that interviewing potential new buyers is a wise idea.

Harris Bornstein is CFO at Douglas Elliman  Property Management.

It is grand, like a building in Paris, the City of Light. But its glory days were in the past; 43 Fifth Avenue needed a makeover. "The marble was cracked and a lot of it hadn't been given a vigorous cleaning in years," recalls Donald Farley, a retired chemical engineer and business consultant, who has spent 12 years on the board, all of them as president.

Erected in 1903 and converted to a co-op in 1978, the property has an elegant entrance that leads up a flight of stairs to a handsome marble vestibule. Attractive doors lead into a spectacular lobby with elaborate Art Nouveau-style bas-reliefs on the side walls and a marble floor. The 11-story, 38-unit building is surrounded by a deep dry moat and the entrance is flanked by tall limestone lampposts. The façade, which is topped by a two-story mansard roof, has many bay windows and several attractive wrought-iron balconies.

I'm buying a sixth-floor apartment. There is no doorman, and I was told by the board that I have to go down to the lobby every time someone I don't recognize buzzes. Why?

The buyer may find that, while extreme, the extra security is warranted. Ultimately, a buyer should be comfortable with a property's level of security before purchasing. As with the purchase of any new home, research is fundamental. The buyer should visit the current managing agent, read the minutes, and review the house rules with a broker and ask questions. An interview with the board of directors is a great opportunity to find out the reasoning behind house rules that may seem extreme or out of the ordinary. By asking why these rules are in place, the buyer will be more informed; for example, "Was there an incident that caused this to be put into place?"

When a buyer who is aware of the house rules purchases an apartment, he or she agrees to obey them, and the co-op board must enforce them. The board implements these regulations because they are governed as a corporation and are subject to its own bylaws. House rules can be amended by a majority vote of the board. Added security measures are common in properties with older residents.

Jackeline Monzon is a partner at Crystal Real Estate Management.

Temperatures have been hitting sweltering highs. Now's a good time to review some guidelines on proper air-conditioner installation — especially if you have new shareholders moving in. Here are some recommendations regarding window-mounted air-conditioning units. Having established rules and guidelines in place will go a long way toward helping prevent accidents — not to mention ensuring a safe Local Law 11 status for the building. And check out this primer on installing ductless air-conditioning units from our Ask the Engineers series. Stephen A. Varone, AIA, & Peter E. Varsalona, PE, both principals in RAND Engineering & Architecture, break down everything from roof installation to proper maintenance. Stay cool this summer, and do it smartly and safely. 

We're in the middle of the purchase process and just learned about an upcoming assessment. We're concerned that the board doesn't know what it's doing.

In co-op and condo circles, "assessment" has long been considered a dirty word. But, in reality, it is the cleanest way to fund a project. For the most part, an assessment has a clear start and end date. The funds are meant for a specific project and based on a specific budget. As a shareholder or unit-owner, you know what you are paying for and how long you have to pay for it. There is comfort in knowing and being able to plan for a finite end date to both the project and the cost.

The alternative methods of raising the funds are through common charge contributions or borrowing. While I'm a big proponent of building a reserve fund through common charge contributions, I feel this is a long-term solution in capital planning. The danger in longer-term solutions is that the people making the decision – the board members – aren't always there for the duration. Boards change and, when that happens, so do strategies and agendas. With any long-term planning, you have to hope that board members and their successors have the same fiduciary discipline and similar financial goals.

Assessments are clear in what they are meant to address, leaving little room for misunderstanding and misinterpretation.

A.J. Rexhepi is director of operations & development at Century Management.

A new shareholder should be concerned about an open lawsuit because the outcome may pose a financial burden on the building. Not all lawsuits are covered by insurance policies and, therefore, the cost of litigation and a possible negative outcome could wipe out reserves or require a special assessment. As a new shareholder, you are now faced with funding these costs in addition to your regular monthly maintenance and mortgage payment. I suggest a shareholder get a legal opinion from his or her attorney as to the likelihood of a negative outcome, or get an opinion from the attorney representing the building.

Buildings face lawsuits all the time for trips and falls, interior damages, etc., but they are often covered by the building's insurance. Lawsuits for claims of discrimination, sexual harassment, human rights violations, mold, asbestos, or fraud are usually not covered under these policies. That's when the effect could be significant.

Pamela DeLorme is president of Delkap Management.

Falling behind on collecting arrears is a big problem with smaller buildings, especially co-ops. Larger buildings have many shareholders and they can survive if a few people don't pay. I see this in the large new condominiums in which the foreign investors often don't pay their common charges.  

In smaller buildings, there are only a few owners. If one or two of them do not pay, the other owners have to pay double. In essence, the owners who pay are punished for the malfeasance of those who don't; they have to pay their own common charges and put in money through assessments or increased monthly charges to make up the budget shortfall.

These buildings have mortgages to pay. If they don't have sufficient funds to cover their mortgages, they could default and the lender could foreclose. We saw this in the early 1990s when the bigger buildings got into trouble because sponsors with unsold apartments and rent-stabilized or rent-controlled apartments could not afford to make the monthly maintenance payments. In sum, boards are advised to aggressively pursue arrears. Although the legal costs may be significant, you have to get owners to pay. Banks will not lend to buildings or unit-purchasers if there are significant arrears in maintenance or common charge payments.

Martin S. Kera is president of Bren Management

Wondering how you can replenish your co-op's reserve fund? Here are five ways.

Say the gas at your co-op is shut off because of a leak. Your building may need to dip into its emergency money stash to make the necessary fixes. But what happens if the fixes you make drain most of your reserve fund?

Keeping the reserve fund replenished is a huge contributing factor to any co-op or condo building's financial health. Another reason co-ops should pay close attention to how much money they have in their reserve funds is to keep banks and lenders happy.

To approve the mortgages of potential buyers, financial institutions want to see a certain amount of money in reserve — professionals recommend keeping three to six months' worth of maintenance charges. (Condos have different requirements.)

Dip below that, and your building may start to see apartment sales figures drop. Here are five ways you can replenish the reserve fund.