Every Autumn, the Council of
New York Cooperatives & Condominiums holds its day-long
information-packed Housing Conference at Hunter College,
with dozens of workshop offering unparalleled opportunities
for board members of cooperatives and condominiums to learn
and to share information on virtually every aspect of operating
their buildings. The 21st annual Housing Conference will
take place on Sunday, November 11, 2001.
At CNYC's 20th annual Conference
in November, 2000, fifteen new workshops were offered, along
with three times that many classic sessions. Reviewed here
are two new presentations. Dick Koral, founder of the Apartment
House Institute chaired a lively panel discussion entitled
How to Hire a Super, and Attorney Douglas Heller presented
an informative seminar detailing the many situations and
options that can arise regarding the transfer of apartments,
primarily in cooperatives. Updated versions of both these
seminars will be presented at the 21st annual Conference.
HOW TO HIRE A SUPER
Building superintendent Eugene Marabello, property manager
Paul Herman and co-op board president Naomi Dickerson joined
the Superintendent's Club's founder Dick Koral for a panel
discussion entitled "How to Hire a Super." Their
class was comprised largely of members of co-op or condo
boards, but it was enhanced by the presence and participation
of two superintendents and two property managers.
The panelists opened with brief statements of the difficulty of hiring
supers. The balance of two hours was spent with a free-for-all discussion
among all the participants. Both board members and managers expressed
the problem of the lack of any standards of competencies available to
them for comparison to the items on candidates' resumes. When Koral
told the group that the Supers Club was striving to embark on a Certification
program, the announcement was greeted with enthusiasm.
Pointing out that superintendents are probably in the last remaining
profession that makes house calls, Mr. Marabello commented that most
boards and managers do not recognize all that a super's work really
entails. This, he said, hampers their ability to identify criteria on
which to base their selections. He listed dozens of chores that he routinely
performs in his building. His remarks were warmly seconded by the two
supers among the participants.
Board president Dickerson emphasized how important her super was; that
without his years of experience in running the building, the board would
be lost when planning or reviewing its maintenance program. Manager
Herman brought twenty years of experience in helping and advising owners
in the recruitment of new supers. His role typically involves a search
and presentation of three suitable candidates for a board to interview.
He indicated that the search was difficult, and that he advises the
boards that they must avoid questions as to family background or composition,
age, etc., which are illegal to ask. However, drug tests and background
checks help his clients to learn much of what they need to know to judge
candidates.
The panel commented that smaller buildings (about 40 units or less)
have the most difficult problem because, unless they are luxury housing,
it is unlikely that they can afford a full-time super. They have to
grapple with the reality that the super must work off premises most
of the time, hopefully available to return for emergencies when called.
Here, the lack of understanding of what a super does became most obvious.
When a building looks to the super as primarily a janitor, it forgoes
other important services such as energy conservation measures, so that
fuel costs can be very high.
Other significant items emerged from the discussion. One was the importance
of providing a decent apartment for the super and his family. The all-too-frequent
offering of a one-bedroom to a super with two children was shown to
be an obstacle to hiring other than a bachelor! Owners of small buildings
were urged to acquire an apartment for the super close by, if one were
not possible in the building.
The Super's Club will welcome your building super as a member and your
monetary contributions to its efforts. For information call the Apartment
House Institute at 718-260-5225 or visit the club's website at www.nysupersclub.org
CHALLENGES ON APARTMENT
SALES AND TRANSFERS
The Board of a cooperative or a condominium faces both responsibilities
and opportunities when owners propose the transfer of their condominium
units or the proprietary lease and shares in their cooperative apartments.
While cooperatives all have standards in place regarding the approval
of apartment transfers, procedures surrounding the actual transfer can
have unanticipated complexities. The Tax Reform Act of 1986 added to
the complexity of transfers by significantly expanding the definition
of shareholders qualified to own a cooperative. This law allows shares
to be issued to trusts, corporations and similar legal entities. To
avoid potential risk, boards should understand the implications of these
various options and should be alert to the many unusual situations that
can arise in the course of a transfer, warned Douglas Heller, partner
in the law firm of Friedman, Krauss and Zlotolow. "We do not claim
to have all the answers," he said, "but we will attempt to
make some suggestions as to how to handle particular situations."
Although condominiums have relatively little control over sales and
transfers, the right of first refusal sometimes gives a condo board
the power to designate another purchaser. One possible complication,
Mr. Heller explained, is if the seller refuses to complete the transaction.
To protect against costly litigation, the board should examine its documents
to determine if the legal fee will be passed on to the seller in such
an instance.
CAREFUL RECORD-KEEPING
All too often, said Mr. Heller, a cooperative must deal with a seller
who has lost his stock certificate and proprietary lease. In most instances,
these documents have genuinely been misplaced and the shareholder's
affidavit of loss could be sufficient documentation for issuance of
new shares, particularly if the cooperative has carefully maintained
records of all loans it has authorized and has retained copies of recognition
agreements on all loans. However, Mr. Heller cited an incident in which
a shareholder claimed to have lost the proprietary lease and stock certificate
but in fact had pledged them to a bank for a loan. The cooperative had
experienced changes of management and had no record of a mortgage on
the unit; upon receiving an affidavit of loss from the shareholder the
cooperative authorized the sale and issued shared to the new purchaser.
When the lender subsequently asserted its lien, the cooperative was
held responsible for the entire amount of the unpaid loan. The Court
determined that since the cooperative had misplaced its copy of the
recognition agreement, between the bank and the cooperative, the bank
was the more innocent victim. To protect against such a situation, Mr.
Heller suggests careful record keeping and a clear policy for lost documents.
To further protect its interests, the cooperative can require that its
transfer agent examine the lien and judgment search on every apartment
subject to transfer. Boards can also consider requiring a bond from
shareholders whose document s are lost.
Mr Heller also noted that who your transfer agent is may make a difference
as to liability if a problem arises. Usually, if a managing agent is
the transfer agent, the agent is protected by an indemnification provision,
leaving the cooperative with the entire financial responsibility for
a problem. Attorneys, if they are transfer agents, are usually not indemnified.
Mr. Heller suggested that cooperatives rethink the transfer agent issue
when they are negotiating their management contract.
CO-OWNERSHIP, DIVORCE AND
DEATH
In instances where there is more than one owner, the most
crucial issue is what becomes of the apartment shares when
one of the shareholders dies. When a husband and wife are
co-owners, ownership may automatically pass to the survivor,
provided certain formalities have been complied with. The
Board must also be familiar with the terms of their own
proprietary lease, as transfers to a surviving spouse are
often permitted without board consent, even if the spouse
cannot afford the maintenance. Additionally, while board
approval is usually required for transfers to other family
members, the board must often provide "good reason"
for withholding authorization to transfer ownership.
In cases of divorce, other complications may arise. For
example, a court may order a cooperative to issue a new
stock certificate and proprietary lease to one of the co-owners.
However, Mr. Heller cautions that "the attorneys for
the parties and the lender should be promptly advised that
the cooperative is not about to issue new ownership documents
unless it first gets the old ones back."
Another potential danger to cooperatives involving transfers
on death is whether there are judgments or tax liens involving
the transferor, especially in the case of federal and state
income and estate tax liens. If there is a lien, Mr. Heller
recommends that the IRS and New York State Tax Commission
be represented at the closing and that both agencies provide
the cooperative with written receipts for the amounts due.
SHAREHOLDER DEFAULTS AND
THE U.C.C.
Mr. Heller previewed an amendment to the Uniform Commercial Code (UCC),
which has been enacted since his presentation. It contains provisions
designed to improve the accuracy of record-keeping on apartment loans
and also clarifies the rights of a cooperative in cases of shareholder
default. Mr. Heller cautions that although proprietary leases usually
contain guidelines to be followed in the event of default, "courts
have not been sympathetic to cooperatives which want to cancel shares
or auction the cooperative interest." In any case, he says, ending
a shareholder's ownership is nearly impossible until the cooperative
secures eviction and the apartment is vacated.
"UNSOLD SHARES"
A proposed change in transfer procedure regards sponsors and holders
of unsold shares. While most cooperatives usually do not oppose the
sale of unsold shares, there is some support from the Attorney General's
office to stop sales without board approval. Says Mr. Heller, "The
idea is that if the holder of unsold shares loses that status, the shares
it owns are no longer 'unsold shares,' and any further sale, sublet
or alteration would have to be approved as if it were any other transaction."
The often unclear concept of unsold shares which, noted Mr. Heller,
is likely to become even more unclear due to recent turnover in the
Attorney General's Office-- can result in litigation between the cooperative
and the holder.
TRUSTS AND CORPORATE OWNERSHIP
Recently, trusts have become more popular, among the middle class as
well as the wealthy. Trusts can create a number of new complexities
for transfer situations in cooperatives. Accordingly, Mr. Heller recommends
that when considering trusts, a cooperative should make sure that the
effect of the trust is minimal, and that the type of trust is acceptable.
Necessary documents include:
