NEW YORK CITY

The new officers of a longtime cooperative corporation client recently contacted us to advise that the past president (a former board member who had not run for re-election to the board) had failed to turn over records to the new president and board. The new president and board made several requests that the former board president turn over records. The former president was unresponsive. Eventually, the current board members asked our firm to get involved. We determined which records were missing. The corporation’s principal financial records remained in the custody of the managing agent, while the minutes of the corporation’s board and annual meetings remained intact and available for inspection in the corporation’s offices. Eventually, we were able to narrow the list of specific items that the board sought to obtain from the former president, who in turn was responsive to an inquiry from counsel seeking specific items. The former president delivered two of the three missing items, while duplicate copies of the third item (which the former president did not have) were obtained from a vendor. All in all, a happy ending for all concerned.

Takeaway

While the situation described above was resolved without resorting to litigation, there are two key lessons for cooperative corporations and condominium associations. First, every board should establish “best practices” standards for its operations. The organization and maintenance of corporate records within the board’s control is only one step toward “best practices” standards. As counsel, we also recommend several other key actions for boards, including training procedures for new board members, adoption of a code of ethics, written guidelines for bidding and contracting, and procedures for proper ratification of informal board actions.
Second, following the annual meeting, every board should have an annual “transition” meeting with its key professionals – counsel, management, accountants, and other key advisers. Even if there are no new board members, this is still a useful drill to ensure that everyone is on the same page and has established the same priorities entering into a new year. The most important takeaway, however, is to make sure these lessons are not just written down – boards need to ensure that “best practices” governance becomes a reality.

It's no surprise to see New York City real estate media tripping over themselves to report on the latest new super tall buildings every week – we're guilty of it, too. In a constantly-changing city, residents want to know what's going on in their neighborhood. Now, even National Geographic is getting in on it.

The national publication released an interactive map showcasing the "New New York City Skyline" on their website. "Before 2004, Manhattan was home to 28 skyscrapers 700 feet and taller. Since then, an additional 13 have been built, 15 are under construction, and 19 are proposed—47 more in all. These additions are rapidly—and radically—changing the skyline," explains the introduction. Readers then have the opportunity to view a 3-D map that shows how downtown and midtown Manhattan skylines will change in the not-to-distant future.

In a lien foreclosure lawsuit, Lasser Law Group successfully collected more than $140,000 in unpaid condominium common charges, late fees, and legal fees from a commercial condominium unit-owner who had not paid common charges for several years. Lasser Law Group was retained by the board of this small condominium building in the middle of 2014 to take over the lien foreclosure lawsuit, which was originally begun by a different law firm in 2013. We quickly made a motion for summary judgment, which prompted a settlement payment from the commercial unit-owner, including late fees and legal fees. Because the commercial condominium unit was large in size, its monthly common charges were also sizable, resulting in a significant budget deficit for this small building during the course of the foreclosure lawsuit. The settlement payment provided a much-needed cash infusion to the small building.

Takeaway

Common charge arrears continue to be a problem for condominium boards and property managers. It is important for boards and managers to promptly start legal action to prevent unpaid common charge balances from ballooning out of control. It is also important to retain experienced condominium collections legal counsel as there are usually a variety of legal approaches that can be taken in each case, and a lien foreclosure by itself is often not the most cost-effective approach.
Condominium boards should also review their bylaws with legal counsel to make sure they contain strong language, which ensures that the condominium can properly collect late fees and obtain reimbursement of legal fees spent suing unit-owners who fail to pay on time. Without the appropriate language in their bylaws, condominiums may have a difficult time recovering such late fees and legal fees, and this may embolden some irresponsible unit-owners to delay or withhold payment of their common charges.

Another day, another reason to look sideways at the booming luxury buildings in Manhattan. Advocacy group Climate Works for All released a report showing that New York's most expensive buildings are its least energy-efficient.

Curbed reports that the group "looked at the Forbes Billionaire List, then Business Insider's 20 Most Expensive Buildings in New York City list, and cross-referenced this information with the city's Energy Benchmarking data. They came up with a list of ten buildings, all of which scored an F in terms of energy efficiency." According to the group, buildings produce seventy percent of the city's emissions. But have no fear! The group also "provides suggestions for reducing these emissions, such as implementing zero net energy standards and passive house technologies."

This year, we have worked on two different files that concerned crime policies and fidelity bonds. In one instance, a board member of a self-managed co-op absconded with hundreds of thousands of dollars. The client advised that the co-op did have a fidelity bond and, therefore, thought that it would be at least partially covered for such a loss. A review of the fidelity bond quickly showed that to qualify for recovery, the person who committed the theft had to be “tried and convicted” in court. While the hope is that the authorities will vigorously pursue the perpetrator, it is the authorities who determine whether they will pursue the case and bring it to trial. Therefore, even though our client would be able to prove a case in civil court, it is not enough for the bond to pay out.

Additionally, there was other restrictive language in the fidelity bond: that only an officer of the co-op who received compensation would be covered. With this type of language, the fidelity bond offered no protection if a board member stole money (a bad recipe in a co-op that is self-managed). In another instance, a managing agent absconded with more than $100,000 of co-op funds. In this instance, the co-op had a crime policy in place. However, the insurance company disclaimed on the grounds that the principal and/or employees of the management company were not “employees” of the co-op. The carrier argued that, even though the management company was employed by the co-op, it is not an “employee,” since it is not a person. We are currently in litigation with the carrier over this interpretation.

Takeaway

Just because a co-op has a crime policy or fidelity bond in place does not mean it is affording the co-op coverage if there is a defalcation. The self-managed building had a fidelity bond for the purposes of protecting it in the event funds were stolen. The board had no managing agent and the board members had unchecked access to funds. However, the fidelity bond they purchased would never have covered theft by directors and officers coverage because they do not receive compensation.

Additionally, the prerequisite that a conviction has to occur before the policy could be paid out is a high bar to recovery. In short, because of the restrictions, this policy was of very little value to the co-op. In the other case discussed, the co-op had crime policy coverage. Since the managing agent has access to co-op funds, it is imperative that a crime policy cover theft perpetrated by an agent. This policy did not unequivocally state that it covers theft by a managing agent. Many policies have the managing agent covered through an additional rider to the policy. The takeaway for our boards is to use an insurance broker who is well versed in insuring co-op and condo communities and can understand the nuances of how your community is structured. Once insurance is placed, have the crime policy or fidelity bond reviewed either by the insurance expert with your managing agent or attorneys.

In an unusual survey, BrickUnderground interviewed New Yorkers on their neighborly pet peeves. The question for these sleep talkers was whether they preferred the annoyance of loud neighbors or smelly ones (keeping in mind that smell can mean anything from cooking smells to smoking and beyond). One Sugar Hill respondent preferred smell to noise, which was called “stressful, especially if it’s fighting or a dog or something and it never stops.” Mack in Jackson Heights chose noise, because, “whatever it is, I can handle them. If it’s too loud for me, I’ll go over there and tell them, and if they continue, I have no problem elevating my complaint.” But the final word comes from Vinnie, who is willing to put up with smells for the cash: “My roommate has B.O. and I hate it. But he pays his rent on time.” Way to go, Vinnie!

I helped a co-op building in one matter and a townhouse owner in another negotiate favorable access agreements with neighboring developers and was able to secure reimbursement for the professional services needed to review the relevant documents and drawings. In each of these cases, it was important for me to pull together the right team of people to assist the client. This included a structural engineer, a surveyor, and others. We then were able to negotiate the terms of an access agreement, which provided for a condition survey, a review of plans, insurance, vibration monitoring, and compensation for damages. Determining your property line between the two buildings can sometimes be crucial, but you cannot assume you know the property line just by looking at the property itself.

Takeaway

My advice to a board is to plan for dealing with a neighboring developer and not be afraid to make some waves. The developers are as scared of the co-op as the co-op is of them, since time spent in court is money. Developers with bank loans do not like litigation. The negotiations must be handled by a lawyer with experience in this area who can pull together the necessary team of professionals and litigate, if need be.

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.