Publication Date: Winter 1997

CNYC proudly presents its Cooperative Housing Conference each autumn. With product exhibits to visit from early in the morning and scores of workshops and seminars, the Conference brings together hundreds of CNYC members for a day of learning and sharing.

With New York's residential sales market heating up, cooperative and condominium boards need to take a hard look at their admissions policies. Outdated or inadequate rules and procedures can quickly erode the value of units in your building or its quality of life, so it pays to make sure that your admissions policy is sound.

According to Arthur Weinstein, a cooperative and condominium attorney and CNYC vice president, boards should have all their procedures locked in place "before a contract of sale is signed -- before it is even thought of." That means having all policies in writing, reviewed and approved by your attorney and accountant and distributed to all shareholders and prospective purchasers, so that "you don't have a one-bedroom apartment being used by four families, without rules that specifically state that this can't happen," he says.

REVIEW ALL BUILDING RULES AND REGULATIONS
The first step is to review all of the building's rules and regulations defining what shareholders can and cannot do with their apartments. "If you have a strict alterations policy, a good synopsis of it should be in the admissions package," says Stuart Bardin, executive vice president of Quadrangle Realty Services. "This way, by the time of the interview, people have a clear sense of what is allowed and what isn't."

APPLICATION FORM IS KEY
Another important component of the admissions package is the application form. This should not only ask the applicant to state his current income, but also provide some evidence. Most boards are satisfied with receiving only recent Federal 1040 tax forms, yet this can prove tricky. "Don't rely on the 1040s totally, because they are easy to fake and there are plenty of people out there who will try to deceive you," says Mr. Weinstein.

Instead, contact the applicant's current employer and ask for verification. You can also ask the applicant's CPA to verify the income in writing on his letterhead, "especially if the applicant is in the performing arts or other freelance areas, where income can vary from year to year," says Mr. Weinstein. Also ask for a balance sheet of assets and liabilities. "You could have someone who owns $10 million worth of real estate, but has $11 million in debt," says Mr. Weinstein, noting that "it's grunge work to have to collect all of this, but it's information you need to know."

Another tough call is when the applicant owns his own business, and may intentionally declare a low personal income to avoid the higher taxes. An obvious way around this might be to look at the applicant's personal assets, but these, too, could be tied up in the business. "The only protection you have is to get the business on the hook for the maintenance," says Mr. Weinstein. "That is the entity with the assets, so it should be responsible for making sure the maintenance is paid. You have to be creative in the admissions process."

When you receive financial information, limit the number of copies that are distributed, and make sure they don't fall into unauthorized hands. "This can be a particular problem when celebrities move into buildings," says Mr. Weinstein. "It's your responsibility to handle these documents responsibly."

To do all of this work, the board should create an admissions committee which includes at least one board member, who should serve as the chair. "The committee does not have the power to say yea or nay, but it does all the work to get the information that the board will need to make a decision," says Mr. Weinstein.

Some buildings prefer not to send out admissions packages when the seller is in arrears. This can present problems, says Mr. Weinstein. "If the seller is in bankruptcy, why hold onto your refusal to let him close? You want to get him out of the building and get a maintenance-paying shareholder in. And, he'll have to pay all arrears at the closing, anyway."

Both Mr. Bardin and Mr. Weinstein recommend letting the deal proceed and then making the shareholder pay all debts at the closing. "This is your time to clear up every single problem you've had with the owner," says Mr. Weinstein. "If they've ignored late fees for the last 10 years, you can collect it now. If they made an illegal renovation, you can now make the new shareholder sign an agreement to be responsible for making the changes. The power is in your hands not to let this transfer go through otherwise."

One of the most crucial elements of a complete admissions package is the contract. The admissions committee should read this very closely. "Make sure the seller did not misrepresent anything, like saying the buyer can tear down all the walls in the apartment," says Mr. Weinstein. "If you approve someone without seeing the contract, you could be locked into something you do not want."

According to Mr. Weinstein, the board should update the admissions package every few years. The building's needs change, as do government regulations regarding transfers. One example is the recently passed lead-based paint disclosure law, which takes effect on December 6, 1996, for cooperatives and condominiums. Your current admissions package should include appropriate disclosure information and should clearly state the seller's responsibilities and the buyer's options.

If there's one fact that all boards should remember with every admissions decision they make, it's that they are in control. "Don't compromise your standards," says Mr. Weinstein. "You are the ones who have to live in the building, with or without the prospective purchaser. So keep the building just as you want it to be."