Published: Spring 1995

The following article appeared in the Spring 1995 issue of CNYC's quarterly Newsletter. You must be a member of CNYC to receive the complete Newsletter, which features timely articles on issues of importance to cooperative shareholders and condominium unit owners. Click here to reach the CNYC Membership Registration Form.

Apartment renovations never cease to be an issue for cooperatives and condominiums. In bad markets, owners renovate to make the most of space that they have. In good markets, they are either fixing up before they sell or after they buy. For boards, this raises a key question: What work should they allow, and what requirements should they place on shareholders?

To explore the answers, CNYC offers the following report on a workshop at the Cooperative Housing Conference entitled Renovating Shareholder Apartments. It provides guidelines to boards for maintaining the physical integrity of their buildings and the peaceful coexistence of building residents.

CNYC's Annual Cooperative Housing Conference offers timely workshops and other educational opportunities, providing cooperative and condominium leaders with the knowledge they need to make intelligent and informed decisions.

Asound policy for apartment renovations is the best defense against unnecessary maintenance problems and resident acrimony. Without a clear-cut set of rules and limitations, boards, and shareholders, never know what they're going to get. CNYC's 18-page booklet entitled Renovation in Cooperative Apartment Buildings (see CNYC Publications) helps a board to set these rules.

Directors should first decide which types of alterations require approval. "You should err on the side of requiring board approval," noted Harold I. Steinbach, an attorney specializing in corporate and real estate law. "You might go so far as to say that everything other than decorative work requires approval. It's not a matter of the board controlling everything shareholders do, but that the board is looking out for the physical integrity of the building."

If shareholders question the board's right to issue or withhold approval for apartment renovations, point to the proprietary lease. "In 98% of all proprietary leases, it says that shareholders cannot make renovations without board approval," said Steinbach. "It also says that the board will not unreasonably withhold consent." Condo owners can refer to their bylaws, which have similar provisions.

The next step is to put together an outline of the items that must be submitted to the board. These should include plans for the job. If the work requires Department of Buildings approval, the plans should be formal, generally drafted by an architect. If the job is small and does not require city permits or approval, less formal plans may suffice. "You can always go back to request more detailed plans," said architect Robert J. Marino. "But you want to have something in hand that will let you see what they are talking about."

For example, shareholders commonly install pavers and planters on their terraces. While this may seem like a simple cosmetic change, an improper job can seriously affect the waterproofing material on the terrace bed (see CNYC Newsletter, Winter 1995, "Diagnosing and Solving Roof Terrace Problems"). So, it is important to have a physical representation of what the shareholder has in mind.

An important document in any apartment renovation is the alteration agreement. "This piece of paper will give the co-op or condo most of its rights," said Steinbach. "It says the shareholder/unit owner will pay for any legal, engineering, or architectural advice that the board needs in making its determination for approval. It should also require the shareholder to indemnify the building for any damage caused during work, and require that the shareholder and his workers will comply with all laws. Any breach of the alteration agreement is considered a breach of the proprietary lease, so that if a shareholder does not follow building procedures, the board can go for the ultimate recourse of evicting the shareholder."

Marino and Steinbach suggested that the board require a bond or security deposit from the shareholder/unit owner to cover any damage caused to the building during the job. The amount of the bond should relate to the size of the job and the resources of residents. Steinbach suggested requiring less for a kitchen renovation than for a full rehab, "simply because of the scope and duration of the job."

The board should review the construction agreement between the contractor and the shareholder/unitowner. One standardized agreement is the American Institute of Architects (AIA)'s form number 107. It asks for the contractor's name, address, the scope of the work, start and completion dates, and whether there is a penalty for delayed completion of work.

"Make sure the board sees this or something like it before it allows any work to begin," said Steinbach. "The agreement should include a requirement that the contractor have all the appropriate insurance (ask for a copy of the contractor's actual certificates of insurance), that the contractor will arrange for disposal of all refuse produced during the job, and that the contractor has all the appropriate licenses for the work being performed." Licenses are required for all plumbing and electrical work, as well as for asbestos removal/abatement and other environmental work (ask for copies of these, as well).

To be safe, the building should have its own architect/engineer review all the elements of the job - with the cost charged to the shareholder. "The building's architect/ engineer will be protective of the building," said Marino. "He or she will look at whether the job needs Buildings Department approval, and whether it would comply with local code."

The building should also have rules for how alterations proceed. For example, many buildings only allow work to be done Monday to Friday, 9 AM to 5 PM, to keep noise complaints to a minimum. Be specific also about how hallways and elevators are to be protected, and which elevators workmen can use. In some cases, the board may want to monitor the work, putting a staff member on site or requiring periodic inspections by the building's architect/engineer. The cost for this should be borne by the shareholder, said Steinbach.

Payment is as important as any other element of the job. The shareholder's contract should specify how much will be paid up front, and how much will be withheld until the job is signed off. One major headache that can arise is when the contractor and shareholder disagree on whether a job is completed. As a result, the shareholder withholds payment and the contractor may place a mechanic's lien - against the building. If this happens, the lien will remain in force until the matter is resolved.

While a lien is pending, the building could have trouble refinancing its underlying mortgage or securing other forms of financing. To alleviate this problem, the board may require that the shareholder post a bond (through an insurance company) to cover the lien amount.

To avoid a lien problem, the board can require all contractors working in the building to waive their right to a mechanic's lien, said Steinbach. That includes all subcontractors, as well as general contractors. "Waiving this right doesn't mean they are giving up their right to be paid, just to put a lien against the building," he noted. Suppliers, such as lumber companies, can also place such liens, although this is not as common.

In the end, the burden falls on the board to be as meticulous as it can before allowing apartment renovations. "People have all kinds of ideas about what they would like to do with their apartments," said Marino. "It's your job to make sure they do it right."