Cooperative and Condominium

September 5, 2014

Standards for Purchasers of New York Cooperative Apartments

Our readers may be familiar with a cooperative apartment building located in Manhattan by the name of River House. This building is known not only for its distinctive classic architecture and regal location, but also by its stringent admissions standards for purchasers. It has been well known throughout the New York real estate community that the River House has declined the purchase applications of numerous famous people and persons with seemingly substantial assets. This culture has resulted in apartments being listed for sale for years, because potential purchasers cannot get approved by the board. Overly rigorous standards hurt all residents, as apartments will not sell as readily. The New York Times reported that the River House has recently relaxed some of its admissions standards.

As we have discussed in a previous blog post , a purchase of a cooperative apartment in New York is subject to the approval of the board of directors. If the board declines the purchase, it will not proceed. Legally, a board can reject a purchaser for any reason, so long as the denial is not for discriminatory reasons. In another blog post , we advise cooperative clients to treat all shareholders equally.

The governing case on the matter of decisions by cooperative boards is Levandusky v. One Fifth Avenue Apartment Corp. This case stands for the principle that cooperative boards, like corporations, are governed by the business judgment rule. So long as there is a legitimate purpose to the decision of a cooperative board and such decision is beneficial to the shareholders as a whole, the decision of the board will stand and will not be subject to judicial review. Boards acting in good faith and in the exercise of their honest judgment are insulated from judicial review of their decision. The business judgment rule is limited by arbitrary or malicious acts of board members, favoritism and discrimination. For instance, a board can legally decline a purchaser if it does not like the person, but cannot legally decline the applicant because they want to retaliate against a seller that they do not like, or because the candidate happens to be Hispanic. Of course, proving that the denial was based predominantly upon an illegal reason may be difficult.

July 28, 2014

Keeping Landlord-Tenant Disputes Under Control

By Weiss & Weiss

Recently in the news is the rather gruesome story of a woman who was murdered and dismembered. Her body parts were discovered in Nassau and Suffolk Counties. Her neighbor was arrested for her murder and is being held without bail. According to the news story, the root of the conflict between the two women appears to have been a landlord-tenant dispute.

The accused murderer, Leah Cuevas, was pretending to be the landlord of the building in which the two women lived, after the actual owner passed away. Ms. Cuevas then attempted to collect the rent from the building’s tenants, and when fellow tenant Chinelle LaToya Thompson Browne refused to pay, she was allegedly murdered by Ms. Cuevas. Of course, most landlord-tenant conflicts do not end in this manner. This blog post will attempt to discuss the legal issues involved, although, as our firm does not generally practice criminal law, we will leave the more graphic issues to the criminal courts.

Often, a situation can arise where a person claims to be the owner and/or landlord of a house or apartment building and demands rent from the tenants. This can happen where the original landlord passes away without a will, or where the building is being foreclosed by a lender. There may be occurrences where a landlord cannot meet the carrying charges on a building, such as the mortgage and utilities, and simply “walks away” from their ownership. If the ownership is in a corporate name, the landlord may not be personally liable for the building’s debts, and does not dispute any foreclosure proceeding that may occur.

July 21, 2014

Access to Building Services in Rental Units in New York

By Weiss & Weiss

A recent news story regarding affordable housing in New York may be of interest to readers of our blog. New York City’s Department of Housing Preservation and Development (HPD) approved a separate entrance in a proposed new building containing affordable housing units. The building would therefore have two entrances (it is located on a corner lot), one for the luxury units, and one for low-income units that would comprise 55 of the 219 proposed units.

Of course, many people are outraged by this “poor door,” arguing that it imposes a stigma on the low-income renters in the building. Others may argue that separate entrances should be allowed as the price for the builder to include these low-income units, which may not have otherwise been part of the proposed project. Including these low-income units in the project allows the builder to construct an edifice larger than that which would have been allowed if the building only contained luxury units. It also entitles the developer to certain tax breaks for providing “affordable housing” to the residents of New York City.

The issue of whether all residents of communal housing, such as an apartment building, are entitled to share in all of the building’s amenities can create additional legal challenges. A building in the Chelsea neighborhood of Manhattan has an indoor swimming pool, a rare sight in Manhattan. There are several buildings with access to the pool, known as London Terrance Towers and London Terrace Gardens. However, these buildings contain co-op apartments, which are owner-occupied, as well as rent-stabilized units, which are not. Under an expiring agreement, between the landlord of the Gardens buildings and the cooperative corporation, the renters were allowed to use the pool.

May 30, 2014

Our Guide on How to Conduct Cooperative Board of Directors Meetings

By Weiss & Weiss

coop board meeting.jpg In a prior blog post , we described how annual cooperative shareholder meetings should be conducted. Now that the cooperative’s Board of Directors is properly elected and in place, the business of the cooperative should begin with the holding of a meeting of the Board and electing officers. This blog post will describe how to conduct regular Board of Director meetings in a cooperative.

It is not unusual for By-Laws to require a newly elected Board to meet immediately after the annual shareholders meeting, even if such a meeting has not been noticed. Otherwise, By-Laws may require advance notice of the Board meeting. While Board meeting notices usually do not need to specify an agenda, we recommend that an agenda be circulated prior to the meeting so that those in attendance are prepared for the discussion of cooperative business and are not surprised by any of the topics.

At the first Board meeting, it is prudent to elect the officers, such as the President, Vice-President, Secretary and Treasurer. The By-Laws will identify those officers to be elected for a particular cooperative as well as their roles. Review of the By-Laws must be made to confirm the quorum (the minimum number required to hold a valid meeting) required for the Board meeting, whether a majority or other percentage of directors. Once it is determined that there is a quorum present at the Board meeting, the By-Laws should be consulted to note voting requirements. Does a mere majority vote or a higher percentage allow for the passage of resolutions discussed? Particular matters, such as enacting additional fees like a flip tax, may require a vote of more than a majority, such as two-thirds. A flip tax is a fee paid to the cooperative at a closing by the seller and may be calculated as a flat amount, a percentage of the sales price, a percentage of the net profit of the sale, or by assigning a particular number of dollars per share owned by the seller. A flip tax is intended to enhance the account balance of the cooperative and share some of the seller’s sales proceeds with the building. Since flip taxes comprise an additional fee, it is not unusual for voting to require more than a majority or for such a matter to be considered by all shareholders, instead of merely the Board.

May 16, 2014

‘Tis the Season for the Annual Meeting

By Weiss & Weiss

May and June of each year tend to be “annual meeting season” for our cooperative and condominium clients. At such meetings, the shareholders of cooperatives and unit owners of condominiums elect their board of directors or board of managers. Those who serve on boards are hard working volunteers, participating on a weekly if not daily basis. Those who attend annual meetings may only attend one meeting a year to question and judge those who participate on their behalf on a constant basis. This blog post will address how to properly conduct annual meetings and why smoothly run annual meetings are important. Although our law firm also conducts annual meetings for condominiums and religious corporations, this post will be limited to cooperative corporation annual meetings.

Why do we have annual meetings? Such meetings are necessary to elect directors at regular intervals, so that the same people do not maintain their posts indefinitely contrary to the will of shareholders. An Offering Plan would have been filed by the sponsor of the cooperative with the New York State Attorney General Real Estate Finance Bureau when the building was converted to cooperative ownership. One of the documents contained in such Offering Plan is the By-Laws. As in any corporation, the By-Laws provide the roadmap for the governance of the corporation. It is common for By-Laws to provide that annual meetings for the election of directors are to be held in a particular month of a year. The cooperative need not hold its meetings in the specific month stated in the By-Laws (who wants to meet in January during a blizzard), it merely needs to hold its meetings at regular intervals each year. The By-Laws specify that the notice of annual meeting is to state that the business to be conducted is to elect directors and to conduct other business specifically identified in the notice, should state the time, date and place of the meeting, and who needs to sign the meeting notice. Our attorneys also pay careful attention to each client’s By-Laws provision regarding the number of days required for the advance notice of the meeting. Usually cooperative By-Laws require that written notice of the annual meeting be delivered at least “x” days but no more than “y” days in advance of the meeting. The By-Laws will also indicate how many directors are to be elected and if there are particular disqualifications (such as a director must also be a shareholder).

Once the meeting commences, the first step is to determine if there is a quorum, the proper number of shares represented for the decisions made at the meeting to be legally valid. The By-Laws identify how many shares constitute a quorum, perhaps a majority of shares issued or a majority of units are represented. Usually, shares can be represented by attending in person or by proxy (the delivery of a signed document instructing how one’s shares are to be voted or who may vote one’s shares on her behalf). It should be noted that certain legal acts or acts as identified by the certificate of incorporation may have a more stringent definition of quorum than the standard director election. As it is inconvenient to adjourn the meeting due to failure of quorum requirements, we encourage our clients to collect as many proxies as possible in case a shareholder cannot attend.

March 12, 2014

Every Hoarder Needs a Clutter Reduction Program

By Weiss & Weiss

Our readers may have read a recent article in The New York Times concerning a compulsive hoarder (or “collector”) and his struggle to clean out his rent-stabilized apartment in order to avoid eviction. While this situation is so notorious that it even became the subject of an episode of the television series “Hoarders”, unfortunately the issue is not uncommon. This blog post will discuss hoarding in the context of a cooperative or condominium building and the legal remedies that the cooperative or condominium board has to preserve the standard of living of the building’s residents.

Hoarding is more than a personal problem for a shareholder or unit owner. The board’s response needs to take into account more than merely trying to give the unit owner a clutter-free existence. The real concerns behind a neighbor’s hoarding are as follows. Hoarding can be a symptom of mental illness. In some cases this author, on behalf of a cooperative board, has needed to inform the shareholder’s next of kin of a potential mental illness that needs to be addressed or has commenced guardianship proceedings to have an individual appointed as guardian of the shareholder to promote the person’s safety and well-being.

Article 81 of New York State’s Mental Hygiene Law governs the procedure for appointing a legal guardian for an adult, as may be necessary to provide for personal needs (such as health and safety) and/or to manage financial affairs. Usually the Supreme Court in the county in which the alleged incompetent resides is the forum for the hearing and trial, but in some cases the Surrogate’s Court in the same county can adjudicate the matter if it is in the context of an already existing estate proceeding. The Court may appoint a guardian if there is clear and convincing evidence that the person will suffer harm because he is unable to provide for his personal needs and/or property management and the person cannot understand the consequences of such inability. The guardianship procedure can be brought by “a person otherwise concerned with the welfare of the person alleged to be incapacitated”. Such a proceeding is commenced by Petition and Order to Show Cause, personally served upon the alleged incompetent. An independent court evaluator is appointed to determine the person’s ability to manage the activities of daily living, ability to manage one’s own financial affairs, and the necessity of appointing a guardian. After a trial or hearing, the Court may appoint a guardian to handle the affairs of the incompetent, who must undergo training, post a bond and file reports with the Court at regular intervals.

November 14, 2013

Eviction Actions After Foreclosure in New York State

By Weiss & Weiss

Some of our prior blog posts have dealt with the legal issues relating to foreclosure prosecutions and defenses in New York State. As discussed in these posts, foreclosures are legal actions in which a mortgage holder will legally obtain title to real property from a defaulting borrower. After obtaining a foreclosure judgment, the property is auctioned to the highest bidder, which is usually the lender bringing the action. The Referee will then prepare a Referee’s Deed transferring title to the successful bidder.

One question that often arises is when the owner continues to occupy the foreclosed property, or when there are tenants in the foreclosed property. What happens to these occupants when the foreclosure procedure is complete and title is transferred? There are several answers to this question.

When the original owner continues to live in the property after a lender has obtained title by a Referee’s Deed in foreclosure, the new owner must take legal action to evict the occupant. In New York State, such evictions can be accomplished under New York Real Property Actions and Procedures Law § 713. This section provides grounds for eviction “where no landlord-tenant relationship exists.” Subsection 5 provides that if the property has been sold in foreclosure, then a certified copy of the deed in foreclosure must be exhibited to the persons to be evicted from the premises.

October 21, 2013

Rent Stablization and Bankruptcy in New York State

By Weiss & Weiss

An article in today’s New York Times discussed a case currently pending before the United States Court of Appeals for the Second Circuit. The litigation discussed involves a rent stabilized tenant who filed for Chapter 7 personal bankruptcy. Although the details of bankruptcy law are beyond the scope of this post, Chapter 7 bankruptcy involves a liquidation of the debtor’s assets, and will extinguish most debts of the debtor, making them uncollectible by the creditors.

In this case, the debtor filing bankruptcy was a tenant in a rent stabilized apartment. Rent stabilization is a type of rent regulation in larger cities in New York State that fixes the rent which a landlord may charge to tenants. It is most prevalent in New York City, but not every apartment will qualify for rent stabilization protection. For example, when one rents a cooperative apartment from the owner, rent stabilization will not apply. In addition, tenants whose income level exceeds a certain threshold may be disqualified from rent stabilization protection.

Rent stabilization protects the tenant in several ways. First, it limits the annual amount by which a landlord may increase the rent for the apartment. This amount is set each year by the Rent Guidelines Board, and their decisions are subject to annual predictable controversy as tenant groups lobby for smaller or no increases, and landlord groups request larger increases. Secondly, a tenant in a rent stabilized apartment is legally entitled to a lease renewal when their current lease expires.

October 9, 2013

Where’s the Bellhop?

By Weiss & Weiss

Regional news outlets in the New York metropolitan area recently reported on Airbnb, an online search engine used to locate short term rentals for those wishing to occupy an apartment in New York City. The Environmental Control Board of the City of New York evaluated whether an Airbnb rental of a room in an apartment, while one of the permanent residents remained in the apartment, constituted illegal use of a residential apartment. The Administrative Law Judge who heard the matter found that “temporary occupancy of the apartment by a paying boarder with a permanent occupant present was consistent with the occupancy of the apartment for permanent residence purposes.” New York State’s Multiple Dwelling Law permits occupancy for fewer than thirty days if the permanent occupant is also present OR incidental occupancy for fewer than thirty days without the presence of the permanent occupant so long as no monetary compensation is paid. Notwithstanding the case at issue, State Senator Krueger maintained that “short-term rentals of apartments in residential buildings without any permanent residents present remains unambiguously illegal.”

The Airbnb case reminds this author of a case that she litigated several years ago entitled Hoffman v. 345 East 73rd Street Owners Corp. (New York Law Journal 10/2/1992 p. 26 col. 4). The Hoffman case involved a shareholder in a cooperative building who was renting out his apartment as a “bed and breakfast” accommodation, without his presence, in order to cover his expenses in maintaining the apartment. The cooperative board discovered his illegal arrangement when one of his guests, with suitcase in hand, asked the doorman “where’s the bellhop?” Mr. Hoffman sued the cooperative for interfering with his right to use his apartment as he wished, but did not prevail in the lawsuit.

The focus of the recent press concerning this issue is whether apartment owners or renters are illegally maintaining a hotel business and, in doing so, failing to pay the hotel occupancy tax to the authorities that collect same. While these are important topics, they are outside of the scope of this blog post. We wish to discuss occupancy rules and restrictions contained in documents to which apartment owners and renters are subject. The proprietary lease at issue in the Hoffman case is very similar to most proprietary leases in New York City. It allows occupancy as a personal residence by the shareholder and (emphasis added) persons of particular relationship to the shareholder, as well as guests for no more than one month if (emphasis added) the shareholder is in residence at the same time. Standard proprietary lease language does not contemplate commercial use in this manner, being paid by someone to use the apartment while the owner is not also present.

September 20, 2013

Islamic Compliant Real Estate Mortgages and Loans in New York State

By Weiss & Weiss

Observant Muslims in New York State who seek financing for the purchase of residential or commercial real estate may have issues with traditional mortgage loans. The reason for this is that, under traditional interpretations of Koranic law, the payment or receiving of interest is considered forbidden (“haram”). While a thorough theological explanation is beyond the scope of this article, the main principal involved is that, under strict Islamic law, the exchange of capital alone for debt is not balanced by any significant advantage to the borrower, because it is not associated with the type of risk that a business venture would entail. Therefore, a loan of funds which generates interest for the lender, to be paid by the borrower, is considered profiteering and contrary to the laws of Islam.

Therefore, a traditional mortgage loan, in which funds are lent for the purchase of a property, either residential or commercial, and the funds are paid back over time to the lender with interest, would be considered non-compliant with Islamic law. This prohibition would apply both to the borrower as well as to the lender.

This raises a dilemma for an individual who wishes to purchase real property. The first solution which comes to mind is simply to pay the full purchase price for the property, and not obtain any type of loan. However, most people do not have the funds to pay for a property “up front,” and therefore require a loan of some type in order to complete the transaction. Most home purchases in New York State require a 10% downpayment of the purchase price. For example, if the purchase price is $500,000.00, the purchaser would pay $50,000.00 prior to closing, and the remainder at closing. At closing, most purchasers would then use funds loaned to them by a bank or other institutional lender to complete the transaction. The lender would record the mortgage on the property to secure the loaned funds. The purchaser would repay these funds over time, paying annual interest on the amount borrowed.