NEW YORK CITY

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?

Photo credit stigmatize / Shutterstock.com

Like death and taxes, capital improvements are an inevitable part of a co-op or condo board's life. They may not happen during your term, but at some point, some part of your building is going to need to be replaced or upgraded. Bidding systems for contractors or other professionals are fine, but who vets the products and systems they use?

In Skyline Restoration's fall 2015 issue of their quarterly newsletter, Adam McManus of Sullivan Engineering explains why a board should be open to installing mock-ups before going through with a large project: "Static product comparison mock-ups are often installed to compare and choose the most aesthetically pleasing match to a building facade feature. Other product comparison mock-ups are installed to test their functionality ... A project plan should always factor in periods of time to test products in place and monitor their performance through weathering and traffic use." No one likes adding steps to capital improvements, but when you can see for yourself how a product will last, it's worth looking into.

A small co-op loft building discovered in the course of its latest Local Law 11 cycle that the top-floor loft-owner had made alterations to the roof without the board’s knowledge or consent and without Department of Buildings (DOB) filings. There were several code violations and serious safety issues. To complicate matters, the top-floor loft-owner is the former individual sponsor of this downtown conversion in the early 1980s, when downtown was the “Wild West” concerning lack of required DOB permits, and who secretively managed the affairs of the building for many years post-conversion. Given the passage of time, it was difficult to obtain a consensus about what happened when. The building is in serious negotiations at this time and hopes to resolve all issues without spending years in court.

Takeaway

Many buildings continue to struggle with the existence of unauthorized and non-permitted alterations. It behooves board members — and in small buildings, the unit-owners — to regularly inspect all areas of the building to determine whether modifications to the building are safe, and that proper DOB permits are in place. Boards should not rely on just one person to do it. Potential building liability is too great to let this go.

Steven Troop is a partner at tarter Krinsky & Drogin.

A large former Mitchell-Lama cooperative went through a series of highly contested elections in which a small and vocal group of dissenters made a number of accusations regarding current and elected board members. After an election in which none of the dissident candidates won seats, the attacks continued and began to include personal diatribes about board members and derogatory comments about the cooperative and its operations.

The dissenting shareholders created a website that contained the name of the cooperative. The attacks on the co-op and its board members continued and became much more personal. After a particularly vicious set of postings that questioned the operation and honesty of the board and management, the cooperative was compelled to start litigation to shut down the website and pursue libel and slander charges.

The problem, of course, was that, although the actual individuals were known, many of the postings were anonymous. In response to the lawsuit, the dissidents were able to interest a large law firm in representing them, pro-bono, based on freedom of expression issues. That firm moved to dismiss the action. The court held that board members are not public figures and are entitled to protection from anonymous attacks, and refused to dismiss the proceeding. The court based the decision primarily on the fact that the website in question was open to the general public and was not limited to shareholders of the cooperative or in any way password-protected. The legal action is continuing; however, the number of negative posts has decreased substantially.

Takeaway

The case brings to the legal forefront a growing concern for all cooperatives: their online reputations. More and more cooperatives have their own websites whose access is limited solely to shareholders or other authorized users — password-protected pages. But unauthorized websites have flourished as well. The internet, despite all its positive features, has also created a forum where a small minority can broadcast negative and derogatory information about cooperatives and their boards to a large audience, which in turn can negatively affect the cooperative and the value of apartments. It is our experience that more boards are beginning to attempt to defend themselves against these types of attacks. In turn, the issue is becoming more prevalent and we expect further litigation that will eventually produce case law governing on what is acceptable behavior on websites affecting cooperatives.

Dean M. Roberts is a partner at Norris McLaughlin & Marcus.

You'd be forgiven if you thought that the seemingly endless growth of newer and shinier residential towers around Manhattan meant that there were more units available for purchase. You'd be forgiven, but you'd still be wrong. Curbed reports that a new report from Crain's shows that less than one percent of apartments available in Manhattan are actually for sale. On top of that, three-quarters of the 850,000 units are rentals, making finding a permanent living situation even more difficult.

The Crain's report goes into more detail about the expense involved in building in Manhattan and how that trickles down to buyers (and tries to justify the headline-grabbing, record-breaking prices that keep popping up). The short version? If you want to own, start looking into a Queens commute.