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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.

A unit-owner had installed a nonconforming window and resisted the condominium board’s attempts to have the violation corrected. The level of obstinacy was unusual and ultimately resulted in fines and years of litigation. After motion practice, depositions, document discovery, and the unit-owner’s attorney changes, a trial finally took place. The court, as had been expected, ultimately ruled in favor of the condominium and ordered that the affected window be restored. However, the unit-owner, who was representing herself by that point, steadfastly refused to follow the court’s directions and eventually, after additional proceedings and hearings, was held in contempt of court. In the end, the violation was cured.

Takeaway

This very unusual situation shows how courts will generally uphold the covenants in most condominium bylaws against exterior alterations. It also reflects the difficulties and resistance boards may encounter in trying to enforce such covenants. When encountering violations of exterior alterations, condominium boards should be aware that although courts will usually rule in favor of the board, the effort can be time consuming and expensive and a favorable ruling may still be difficult to enforce. With that in mind, condominiums should consider amending their bylaws to provide for the reimbursement of attorneys fees to the prevailing party for non-monetary bylaw violations.

John J. LaGumina is a partner in The LaGumina Law Firm.

When you consider the amount of money that people stand to make by renting out a room in their apartments, you can understand why so many co-op and condo boards have to handle shareholders and unit-owners who want to get in on some Airbnb action. Many of them may ask, "Hey — if my building allows sublets, I can sublet for short stays, can't I? And since the law allows roommates, why can't I rent out my spare bedroom by the day, week, or year?"

Co-op and condo boards are often so busy running their buildings that they fail to reach out beyond their immediate world. Yet boards and their counsel would be well served by developing a relationship with local elected officials — particularly city and state legislators. That point was brought home recently for some of our clients. 

For several years we have been assisting several co-ops in residential neighborhoods to try to curtail commercial – and, consequently, incompatible — businesses in their midst. We have reached out to local elected officials on behalf of our clients and, on a number of occasions, we have met with those officials and our clients. 

In one particular situation, a business operator that had lost in court appealed to the state legislature on repeated occasions to be allowed to operate as the owners wished. On each occasion, the community was successful — with the help of elected officials — in stopping this effort. Most recently, on the very last day of the session in Albany, we were notified by one of the state legislators who knew us that a "private" bill had again been "sneaked in" for the benefit of this business operator. 

Had this legislator not been aware of the community's concerns, and had we not established a relationship with this legislator, we would not have been notified. And, in all likelihood, given the vagaries of Albany at the end of session, this bill would have been enacted without scrutiny, to the serious detriment of the community. Given advance notice — albeit only a matter of hours — we were able to launch a telephone campaign to shed light on what was happening and to prevent the bill from being enacted.

Takeaway

The time we spent in getting to know the relevant legislators reaped significant rewards. In other cases, rewards may not be as momentous as being able to stop legislation in its tracks, but building a relationship with elected officials can help in a variety of ways. It does not take much time to develop these relationships, and it is definitely time well spent.

Phyllis H. Weisberg is a partner at Montgomery McCracken Walker & Rhoads.

A father and his daughter owned a cooperative apartment. The father died. The daughter remained in occupancy, but maintenance payments fell into arrears. The board of directors wanted to initiate legal proceedings. It turns out that the deceased and his daughter owned the shares as tenants-in-common. That means, among other things, that ownership of the shares and lease did not pass directly to the daughter. So, legal proceedings had to be started against the daughter and the executor of the father's estate.

The corporation obtained from the court a judgment of possession and a warrant of eviction against the daughter and the executor. The daughter asked that enforcement proceedings be delayed to sell the unit. The board gave her an extended period of time for this to happen, but it did not. A contract of sale was prepared but was not joined in by the executor, so ownership could not pass. The board is proceeding with its eviction and foreclosure of the cooperative apartment.

Takeaway

The lesson of this tale is that, when dealing with an apartment sale, boards and their transfer agents should be more astute about the manner in which the title is held. If they aren't diligent, they can get into complicated estate issues such as this. The way ownership of a cooperative or condominium is held is important. This is particularly so when the co-owners are of different age brackets or life expectancies, or have different relationships. In any event, ownership as a tenant-in-common, as in this case, caused the father's shares to pass through his estate and not directly to the daughter. Whether this was really the father's intent will never be known. If the shares had been listed as joint tenants with right of survivorship, the daughter would have been the sole owner at the time her father died. Boards should advise owners of jointly owned residential community associations to review their estate plans in general, and their form of unit ownership in particular.

Lewis Montana is a principal attorney at Levine & Montana.