Page 6 - CooperatorNews NY February 2022

6 COOPERATORNEWS — FEBRUARY 2022 COOPERATORNEWS.COM “I recommend that owners learn about through pipes in someone’s bedroom walls, their responsibility versus the association’s such projects have the potential to cause responsibility. For instance, with windows costly property damage claims if there’s a and doors, you should know whether leak mishap, either during construction or you’re responsible for the hardware, glass, afterward. and frame. When it comes to plumbing, knowing that while the portions of pipe that serve other units may be the association’s board demanding that someone come fix responsibility to maintain and repair, all a drippy faucet, as well as the owner who the fixtures are the owners’ jurisdiction.” embarks on a full bathroom renovation And, Colon adds, this isn’t just academic; without so much as notifying the board— “these are important, unique areas of emerge in force when a rental building repair that can have a financial impact on converts to cooperative or association shareholders down the line.” For managers of co-op and condo to, because original owners are becoming properties, this ‘tenant mentality’ is extinct,” he says, but even so, “often, one of the biggest hurdles in getting owners who were renters in the property resident owners and shareholders to and then went with the conversion \\\[to understand exactly what their rights and responsibilities are. “Frankly, there should be a class for first-time buyers,” says Wolf, “because new owners need to be educated. They don’t think they’re responsible for anything. They don’t understand what it means to own their home.” Wolf points out another issue: that of new condo or co-op owners assuming that because they’re no longer renters, they can do whatever they please in and around their new home, despite the fact that that home shares walls, floors, and ceilings with other people. “This problem is prevalent in New England,” says Wolf. “As a tenant they had rules, but as an owner, they don’t think they should be limited by anything—they don’t understand that they can’t just do whatever they want. But part of ownership is realizing that the association has certain rules and requirements, that those rules apply to you, and you must abide by them. Like no smoking, or rules about parking, or how loud and during what time you can play music. In an HOA, you can’t just plant whatever you’d like in front of your house. Or in practical terms, say there was a fire in your unit. Often the unit owner doesn’t understand that they have to contact their own insurance carrier. It doesn’t fall under the condo association policy.” Wollman agrees with Wolf. “We see it all the time,” he says. “Usually with renovations. The owner wants to redesign their apartment—say they want to extend the master bath into the bedroom, or something similar. There are a myriad of reasons why you can’t just do that. You can’t place a new ‘wet’ space \\\[like a kitchen or bath\\\] over a ‘dry’ space \\\[like a bedroom or living area\\\] on the floor below.” In addition to the nuisance caused by water rushing According to Wollman, both challenges—the owner who emails the ownership. “We see it less now than we used become owner/ shareholders\\\] still view the board as a landlord. They don’t like to spend money to maintain and upgrade the building, so they often take a band- aid approach to making necessary b ui ldin g-w ide repairs.” Needless to say, this kind of penny-pinching can lead to much bigger problems— and bigger costs— down the road. Condo vs. Co-op As is the case in most instances, there are some fine differences in how these matters are treated in co-ops and condos. With respect to building and mechanical issues such as plumbing, repairs, etc., condo and co-op situations are very similar, with exceptions occurring more as a result of individual governing documents than law or statute. The main area of difference is found with regard to issues of subletting and sales. In a co-op, the board has the right to review and approve both. In a condominium, an owner can sublet without board approval. An owner can sell a unit without board approval as well, though in most states the condo board does have a right of first approval to act as a substitute buyer. The key takeaway here is that your board is not your landlord, nor can you as an owner do whatever you might want at any particular moment. Overall, co- op and condo living is a hybrid. Owners should know their rights—but also their responsibilities. n A.J. Sidransky is a staff writer for CooperatorNews, and a published novelist. He can be reached at alan@yrinc.com. BOARDS, MANAGERS... continued from page 2 the concept. “It’s not always as simple as it shareholders and unit owners any contracts looks,” he says. “A board member may want between the board and interested individual to be involved in a multimillion-dollar re- quest for proposal (RFP). In the past, I have not necessarily void or voidable solely be- explained to clients that that is not nec- essarily a conflict; there could just be different interests at play. In the end, it might not be a con- flict of interest, but it still might not be okay.” What it re- ally breaks down to, says Brooks, espe- cially in a co-op or condominium set- ting, is who has the necessary expertise. “You need an en- gineer,” he says. “If the board member or the board mem- ber’s cousin is an engineer, the question then bers. The annual reports must be signed becomes: Is he qualified?” Brooks goes on to say that “this type of transparency and disclosure around these situation is not automatically a problem— if the board member discloses it, and if self-dealing, but also goes a long way toward the recommended person or entity fits the maintaining an atmosphere of trust and ac- bill for what the board is looking for.” This countability between boards and the resi- could pertain to a board member, a contact dents they serve. of a board member, or even a division or subsidiary of a managing agent’s firm or a brokerage company as well. “If a board member is the best snow plow guy you can get and the price is competitive, let him do it,” says Brooks. “As long as it’s on the up- and-up. If he charges a premium—well, that’s a problem.” Hakim agrees, adding that “sometimes it’s not clear whether there is a conflict—or even if the board member does in fact have a financial stake in the matter. A contractor performing work for the building who also happens to be a distant relative of a board member may not actually be a conflict, provided the board member derives no financial benefit.” A Matter of Optics While boards and their advisors should \\\[for a project in a client community\\\] definitely be on the alert for actual conflicts, without disclosing that relationship to the the pros also stress that even the appearance community. Inside dealing always looks or perception of conflict can be as toxic as bad. the real thing. Hakim says that while it may be perfectly okay to hire a board member’s often don’t understand that most outside second cousin to re-tile the lobby if that vendors will not bid on a $150 job. If no one board member recuses him- or herself else will do it, the management company will from the decision-making process around do it, but may not disclose it. For a board, the project, “the optics often do not play the fact that they couldn’t find anyone else well with concerned shareholders and unit to do the job becomes secondary to the fact owners—so we often suggest disclosing that the manager didn’t disclose it. This often relationship prior to a vote to approve the happens with brokerage divisions as well.” company.” Hakim explains. “Under Section 727 eventually disclosed or discovered, can be of New York Business Corporation Law one of the biggest bones of contention be- (BCL) amended in 2019, boards of direc- tors of New York cooperative apartment corporations and the boards of managers of New York condominium associations are required to annually review and disclose to directors or managers. Such contracts are cause a board member has an interest in the contract or participates in the decision to en- ter into it. Section 713 sets forth what infor- mation about the con- tract must be disclosed, and the process that a board must follow to approve a contract with an interested board member, or to void the contract under certain circumstances. It fur- ther requires boards to disclose to owners if the board has entered into any contracts with interested board mem- by every board member.” A policy of full contracts not only reduces the likelihood of Truth or Consequences In addition to being thrown off the board, “if a board member breaches their fiduciary duty, they can be sued for it,” says Brooks. “You must disclose any potential conflict. Don’t hide it—it will smell bad, and it will eventually blow up in your face. Remember that when everything looks good and there’s a job well done, no one cares. It’s when it goes the other way—and particularly when there is already unrest in a community— that it can be a political problem.” Brooks says that conflicts can also become an issue between boards and management companies. “It usually happens when a management company owns another company that does, say, maintenance work, and they refer the self-owned subsidiary “Conversely,” Brooks continues, “boards Undisclosed conflicts of interest, when CONFLICTS OF... continued from page 1 “Part of ownership is realizing that the association has certain rules and requirements, that those rules apply to you, and you must abide by them.” —Scott Wolf continued on page 8 “Undisclosed interests and kickbacks will certainly not sit well with the building, and are likely illegal given the agency/ principal relationship that exists.” —Mark Hakim