New York's Cooperative and Condominium Community

Habitat Magazine Insider Guide

HABITAT

NEW YORK CITY

A pair of siblings got a tough lesson in caveat emptor and the dog-eat-dog world of New York City real estate. Ten months ago, they bought a co-op and — despite having hired an attorney from a firm recommended by their broker — things haven't turned out quite how they imagined. "We’ve discovered several issues that we think he should have caught," they tell Brickunderground in this week's Ask An Expert. "Not long before we bought the apartment, the board had such serious disputes over elections that it did not meet or function for a while; the building’s roof needs substantial repairs (and did for at least a year before we purchased); and about six months before we purchased, a board member was removed for violating her fiduciary duty." Yikes. The siblings feel their lawyer should have discovered these types of issues and want to know whether they can get some of their money back. And it looks like it's going to be tough. Brickunderground says, "It's possible that your attorney did overlook key information and that you have grounds for a claim — and some reimbursement — here, but it'll be tough to turn up concrete proof, say our experts." The problem is figuring out whether the attorney ignored the information or whether it was simply not available in the paperwork he or she would have reviewed. "In representing a purchaser of a cooperative apartment, an attorney should review the cooperative offering plan, amendments thereto, at least two years of financial statements, as well as the board minutes going back at least three years," Brickunderground quotes Jeffrey S. Reich, a real estate attorney with Schwartz, Sladkus, Reich, Greenberg, Atlas LLP. "However, even performing proper due diligence may not have turned the writer’s attorney on to the stated issues unless they were disclosed in the board minutes, a footnote to the financial statements or an amendment to the cooperative offering plan." Even then, however, it "might be tough to quantify the difference between what you paid for the apartment, and what you would have paid had the building's problems been disclosed." There may be no recourse in this case, which may seem unfair, but that's how New York City rolls.

 
 

I want to put in a dishwasher, but the broker said I would have to ask the board. The apartment I want to buy already has a washer/dryer, so why would this be a problem?

Your board has probably consulted with its engineer or architect or other professional involved with the building's systems. Many properties, especially the beautiful older ones, do not have sufficient infrastructure for all the equipment we like to use now.

In your case, the building's drain system may have limited capacity. The board may have restricted the quantity and type of equipment it will allow to accommodate the current drain capacity; it may have chosen to cap certain equipment to what was present as of a particular date; or it may have limited the number or type of equipment based on some other guidelines. The board may also be concerned about additional costs for water/sewer charges that the additional dishwasher would incur.

I encourage you to discuss any concerns with your property manager. Also, arrange an appointment to read your building's minutes. Both resources will provide meaningful guidance to you. Your offering plan may also provide a report of your building's plumbing capacities and an explanation of the equipment originally provided to each apartment.

Finally, you should confirm that the washer/dryer currently installed received the board's approval, especially if they were not part of the original installation by the sponsor. If your seller, or any former owner of the apartment, installed the washer/dryer without approval from the board, you may need to remove it (using a licensed and insured plumber and electrician).

Divya Rashad is executive vice president and managing director of The Andrews Organization.

 
 

Not always. The importance of having a reserve fund has been coming up with greater frequency in the last few years. This past spring, we began managing a building and it was immediately apparent that the property was a wreck. In the field, our property managers were met with severe problems such as deteriorating elevators that were damaged from years of neglect, cracked sidewalks in need of repair, a leaky roof, asbestos situations in the boiler room and garage, and a temperamental boiler. And, of course, let's not forget about all the local law work that had not been done!

If Murphy's Law was to apply to any building, this was it! The challenge continued away from the building. Over time, we found ourselves receiving legal notices from irate vendors demanding payments. The largest ones came from oil companies because of the high heating costs of recent winters. We had numerous meetings with the board to come to grips with the enormous financial challenge. A more financially sound building would have turned to its reserves to address these issues. But this was not an option here. This building did not have any reserves.

A special meeting had been called to give all shareholders an opportunity to speak. The truth was painfully clear. There was no money for a rainy day. Ultimately, the board decided to impose a special assessment. Because of the magnitude of the financial challenge, the assessment will be a part of their lives for the next four years.

Anastasios Magoulas is CEO of All Area Realty Services.

 

I spent an afternoon with RAND rappellers John Monroe, senior architect/construction phase director, and Sara Tsiropinas, project associate, watching them hang from ropes to inspect a building at the corner of Tenth Avenue and West 23rd Street. Here's what happened. 

 
 

Most well-run co-ops and condos have a reserve fund, which you can think of as a building savings account. As an owner/shareholder, you want peace of mind that, should an unexpected capital project arise or large-scale repair be needed, the building has the funds to cover the expense. Imagine a rather large and unexpected leak in the roof causes damage to many of the building's common areas. If a building does not have a reserve fund, the owners/shareholders are responsible for coming up with the immediate funds needed to pay for that unexpected roof repair. The reserve fund makes it easier for the building's management team to expedite needed repairs.

It should be a red flag to you if a building you are looking to buy into does not have a reserve fund. When reviewing a building's financials for a prospective owner/shareholder, auditors and attorneys like to see a reserve fund that contains enough money to cover an unexpected expense or repair that could arise. They want to assure their client that the building has money to fall back on without the need to assess the building's owners/shareholders. You want to buy into a financially healthy building, one with three to six months' worth of common charges or maintenance charges in its reserve account. It is also recommended that a building set additional funds aside to finance anticipated future major repairs and replacement projects.

The reserve is a positive building asset, one that is shared by all unit-owners/shareholders on the balance sheet. A reserve fund demonstrates board discipline and healthy financial solvency.

 

Michael Berenson is president of Akam Associates

 
 

We're nearly halfway through July and temperatures have been downright steamy. It is the season of the barbecue — that quintessential summer experience that allows people to socialize, lazily flipping burgers while inhaling the aroma of burning charcoal. It's hardly the kind of thing that should tear apart a co-op or condo. But it does mean building residents will probably be heading to their balconies or terraces or to the roof to do some grilling. Therefore, now's a good time for boards to send out reminders — not only of the house rules, but also of the city's rules. Regardless of whether your building allows outdoor grilling, everyone must comply with the safety standards outlined in the NYC Fuel Gas Code and NYC Fire Code. Check out our Spotlight on barbecue rules, which also includes some handy tips from NYC.gov on safe grilling. 

First, what is Section 528? It's a section of the IRS code that exempts a qualified homeowners association (condo associations, but not co-op corporations) from paying income tax on dues, fees, and assessments that are collected and used for the maintenance and improvement of association property. In a column for the New York Law Journal, attorneys Richard Siegler and Eva Talel of Stroock & Stroock & Lavan examine, among other things, eligibility as well as the tax-motivated reasons why a condominium association or board may not choose this favorable tax treatment. 

Buying into a co-op in New York City can be daunting. Among all the various hoops through which you have to jump is the mortgage. Of course, getting approved on your first mortgage when you make peanuts and have your eye on a pricey piece of real estate can leave anyone feeling disheartened. For determined dreamers ready to take on the challenge, however, there is a way. But it's a tricky one, according to The New York Times: pooling your resources with friends so you can taking out a mortgage as a group. Tricky yes. Even dangerous, said one financial expert to the paper. But not impossible, says Brickunderground: "That doesn't mean it can't be done, just that you need to go in with eyes wide open — and a whole lot of clearly spelled out paperwork." There's a lot that goes on the line if you decide to tackle the challenge of getting a group mortgage — and we're not just talking your friendship. If one person in your group flakes, the rest of you will be left on the hook for a lot of money that you weren't ready to pay. But if you're still willing to risk it, Brickunderground reminds you that "any mortgage lender will consider the lowest credit score in the group as the baseline for your application (a chain is only as strong as its weakest link, etc.), and that if one buyer ultimately stops paying, everyone's credit will suffer, not just the delinquent payee. To that end, know that you're legally considered responsible for payments on the entire home —not just your portion." As for the clearly spelled out paperwork, Brickunderground says you "spell out ahead of time — and in writing — details like who has access to outdoor space, how the cost of things like bills and repairs will be divvied up, and what will happen if one person decides to jump ship." Meanwhile, the Times recommends "structuring your ownership as 'tenants in common' — as opposed to the more common 'joint tenancy' setup used by married couples — meaning that in the event of a co-owner's death, their share in the property will pass to their estate, as opposed to automatically passing back to the surviving owner (or owners)." It may seem unnecessary, especially if you're going in with friends you've known a long time and trust, but following those tips can prevent a lot of misunderstandings and unpleasant surprises, especially once it's too late and you're all stuck, erm, living in the same place.

Steven Greenbaum remembers the bad old days when a long-running capital project would generate multiple complaints about the state of a building. "We'd have a loud, dusty, noisy, filthy kind of project. It would disturb the tenants a great deal," recalls Greenbaum, the director of property management at Mark Greenberg Real Estate, better known as MGRE. "People would send e-mails and letters and make phone queries, asking, 'How much work have you done? When will it stop?'"

When it's 30 degrees outside, the last thing on your mind is probably one of the best amenities your co-op or condo may have: the swimming pool. But just because the pool may be out of sight, doesn't necessarily mean it should be out of mind.

Depending on whether your building has an indoor or outdoor pool and what the operating hours are — namely, whether the pool is seasonal — now is an ideal time for boards to take a look at the pool to see what kind of shape it's in, whether it needs any maintenance, and whether it's time to talk about renovating it. Seasonal pools tend to open for business on Memorial Day, and May 25 will be here sooner than you think.

Ask the Experts

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Learn all the basics of NYC co-op and condo management, with straight talk from heavy hitters in the field of co-op or condo apartments

Professionals in some of the key fields of co-op and condo board governance and building management answer common questions in their areas of expertise

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