Altered States

The two buildings were both built about the same time, in the 1920s, and both are in similar Brooklyn neighborhoods, one in Prospect Park, the other in Park Slope. Yet the two cooperatives couldn't be further apart in their alteration policies.

For the Prospect Park co-op, plans for any work inside a shareholder's unit, no matter how trivial, have to be submitted for review by the full board. Then they must be sent to a licensed architect or engineer, at which point they again come to the board for further approvals. The plans must include a full set of architect's drawings. The agreement, which goes on for many pages, also calls for very strict hours of work (between 8 and 4, and never on Sunday). There are dozens of other prohibitions.

At the Park Slope cooperative, however, the board more or less rubber-stamps an "OK" on all alterations. The co-op requires that contractors have a certificate of insurance and places some limits on working hours, but there are no reviews by architects, no fines, and no multiple-page documents. "The people have a completely different attitude at that property," explains Peter Burgess, president of Peter Burgess Realty, who manages both buildings. "They do not want to intrude. So they are more lenient."

The buildings may be different but the question is the same: what goes into an alteration policy? Burgess's two co-ops may each have gone too far in either direction — "There is a balance that can be struck between the strict and the lenient," he notes — but they both are on target with one idea: they have an alteration policy.

Most properties have some sort of guidelines for tenants wishing to make structural changes within their apartments. Although the board is typically not involved in what goes on within an owner's four walls, it should always concern itself with structural and safety questions. According to experts, co-ops and condos should require residents performing major renovation or repair work to sign an alteration agreement that spells out their responsibilities during the construction process and establishes standards that each owner must meet in order to receive approvals. From a practical and psychological standpoint, such a document helps eliminate gray areas.

To some extent, what goes into that policy is defined by how a board sees its role and the image of the building. The Prospect Park property with the extensive guidelines saw itself as an upper crust luxury co-op, while the Park Slope co-op pictured itself as more libertarian. "In general, the alteration agreements come from a board's overall policy — are they closely controlling or laissez faire?" says Ron Gold, a partner in Wagner Davis & Gold. "In general, I find the type of alteration policy the building has is reflected in their other policies towards resales, sublets, and other issues. What kind of scrutiny do they feel they should have?"

For some, the policy is tied to future sales. Many realize that a person may be purchasing because of the potential he or she sees in an apartment. In that case, involved restrictions placed on his or her ability to do work may end up quashing the sale. (Of course, legally, boards must adhere to a "reasonableness standard"; in most offering plans, the co-op agrees that it will not unreasonably withhold consent to an alteration. But reasonableness may be in the eye of the interpreter.)

In some cases, the policy can also depend on the practicalities of the moment. A property with one elevator may need to severely limit the hours of construction work and the number of units allowed to do alterations at one time; whereas that may not be an issue for a building with five elevators. A self-managed building may not have the resources to closely supervise every alteration. James Samson, a partner in Bangser Klein Rocca & Blum, recalls a garden complex in Queens in which each two-story building had a narrow vestibule and stairway. In that case, the alteration policy restricted work from being performed when it rained. The reason? "Since you couldn't carry bulky equipment up the stairs, you had to remove the picture window in the second floor and use winches and pulleys to raise the stuff up," Samson notes. "That was impractical when it was raining."

THE MAJOR AND THE MINOR

So where do you begin? The Real Estate Board of New York (REBNY) has a standardized alteration agreement, while many management and law firms have variations on it. But even more common is the standardized boilerplate of what is called the "Blumberg form" (named after the company that first printed it). Two pages long, it offers a basic set of restrictions.

Nonetheless, some say Blumberg is out-of-date and insufficient. "Twenty years ago [when Blumberg was devised], people were not combining apartments or extensively renovating their kitchens and bathrooms," observes Samson. "Twenty years ago, you didn't have the handicapped access law or lead paint abatement requirements. The old form doesn't deal with the world of today. It doesn't deal with what happens when there's a fight between a contractor and a shareholder and the contractor puts a lien on the building. It doesn't deal with changing room counts or room shapes. It was a contract designed for minor alterations."

When crafting a new agreement form, you should take a look at the particular needs of your property. There are basics and there are extras, the latter determined by how you see your building. (Samson suggests computerizing your form, so that it is easier to update as the years go by.) Bottom line, an alteration policy should define "major" alterations — those requiring board review — and "minor" ones — those that don't. Among the basics:

INSURANCE. The alteration agreement should require that each contractor delivers certificates of insurance, naming all the affected parties as additional entities covered. According to attorney Edward Braverman, senior partner at Braverman & Associates, the certificates should be delivered before the work begins and reviewed by the co-op's attorney. The board should also require copies of written notifications (containing the indemnification) to the surrounding tenants.

ARCHITECT'S DRAWINGS. Each application for a major structural alteration should probably include an architect's drawings and specifications. Then, an independent architect or engineer — paid for by the owner requesting the changes — should review them. The engineer is usually able to tell from the design proposal whether the alterations will affect three basic concerns the building must have.

"At the minimum, you want to have overall control of what's being done in the unit," Gold says. "The first thing is to protect the structural integrity of the building, and that you make sure that plumbing, electrical, and structural concerns are met."

SCHEDULING. The alteration policy should address questions of scheduling. For major work, such as wall removal, the policy can require that the owner's architect/engineer provide a schedule of when the work is to be completed, with as many specific details as possible: type of work to be performed, amount of time for each element — construction work, painting — and length of time for the overall project.

There is also a question of timing. Some properties, for instance, only permit major construction during the summer months when many owners are away. Others allow construction year-round. Many limit daily work to the weekday hours of 10 A.M. to 4 P.M. Few allow construction at night.

MONITORING. The board should require that the managing agent and/or superintendent periodically monitor the progress of the work to see that everything is going smoothly. Along with monitoring, the alteration agreement should probably allow the board to stop the job at any time, and correct anything that fails to follow previously approved specifications.

"People will deviate and hope the board does not notice," explains attorney C. Jaye Berger, who recalls a property at which an owner was doing work on the penthouse. The existing unit contained French windows. The owner doing the renovations felt there was not much difference between French windows and French doors, so he made a switch — without asking permission — figuring the board would not notice. When it did, many members were upset because the owner was taking more space. The dispute escalated and was only resolved with the threat of litigation.

A major alteration can take from three to six months, and within that period, you need to have inspections so the superintendent can check that the work is being handled correctly. Experts suggest that the architect/engineer also review the work periodically — at the owner's expense — to watch for deviations and to ensure that nothing dangerous is being done to the building systems. Remember: there are certain items that the owner should never touch, such as major gas lines and the air conditioner system.

SETTING LIMITS. Without agreeing to a timetable in advance, boards can face difficulties. Work can expand beyond the original plans or take longer than expected. The owners are spending a great deal of money to upgrade their apartments and what frequently happens is that the alterations take more time than originally projected and are not being performed in accordance with specifications.

It is probably wise for boards to impose time limits, always geared to the extent of the renovation; minor repairs do not take as long as gut renovations. Samson recalls one SoHo property without such limits. "It took 18 months to finish," he notes. "During that time, the board didn't want anyone else to start another job because that would be too much construction going on at once; they only allow one job at a time. But because they're taking so long, they're holding up other people who may want to do work. That's not fair."

IMPOSING FEES AND FINES. Fees are expected for some reviews: the owner doing the work should probably pay for the architect/engineer review and, possibly, for extra work by the managing agent. Fines are another matter. Work that takes a long time disrupts the building and disrupts the neighbors. Fines, tied to each day that the owner works beyond the fixed date, are one way of keeping the work on track. Experts say this is an effective way to get an owner's attention. Such a fine could start at $200 and might go as high as $500 a day. But be reasonable: don't start your figures at $1,000 a day. "The difficulty with fines is that if you make them too harsh, too punitive, they may not be enforceable in court," says Bruce Cholst, a partner at Rosen & Livingston. "The graduated liquidated damages provision is usually enforceable."

The fine system will probably help keep work on schedule. Having a penalty for going beyond the completion date helps everyone. The owner can lean on the contractor and say, "If you don't finish on time, they're charging me $1,000 a day, and I'm passing that fine on to you."

SIGNING OFF. To be on safe ground, any alteration policy for major structural work should require that the owner obtain municipal sign-offs at the conclusion of the work and also, if applicable, an amended certificate of occupancy. According to Kurt Rosenbaum, an engineer and president of KRA Associates, the existing C of O must be updated when the room count or the number of apartments in the building changes. Erection of new partitions or demolition of existing walls within a single apartment may change the room count. The building code requires filings for changes in walls, exposure of the internal structural frame, and nearly everything else except painting or hanging new kitchen cabinets.

OPTIONAL EXTRAS

Those are the basics. Depending on how detailed your board wants to be — and depending on its supervisory staffing levels, as well — you can pick and choose from optional extras. No one expects boards to include every one of the "optionals" in their policy, but they may at least want to consider them.

REVIEWING DECORATIVE CHANGES. Some professionals argue that even aesthetic or decorative changes should be reviewed. "The biggest problem I've ever had on alterations occurs in cases of so-called decorative work," Gold notes. "You have a fire start because a worker was smoking around paint or floor varnish, or else they varnish the floor and then leave the windows shut and the pilot light on, which can lead to an explosion. You really need to look at whether they're using volatile chemicals."

Gold suggests a basic two-page agreement for "decorative" jobs such as painting, and a longer, more detailed form for structural changes. "If you're going to put in new faucets that can mean new plumbing, so that requires an architect or engineer to review it," he says.

ADDING MORE INSURANCE. Many attorneys suggest having an escrow deposit as additional insurance. These deposits can be paid to the co-op and held until the work is finished and approved. If there is damage, that means the building has an immediate source of relief. This is typically about ten percent of the contracted cost of the job. "In the event the shareholder can't finish the plans, there is then a mechanism to permit the board to step in and complete the job," says Steven M. Goldman, a partner in Baer Marks & Upham. "It's prudent. People run out of money, die, or lose on the stock market. You may use the escrow money to complete the job."

Some buildings go as high as $50,000 for the deposit, the criteria being that it should be a large enough amount to protect the building from any accident. Cholst says that such protections are prudent and required in his buildings. "We require an air-tight indemnification clause, as well, to make sure the shareholder is not able to evade liability for the project. They have to have adequate insurance and post a security deposit."

SIGNING ASSUMPTION AGREEMENTS. You may consider preparing an "assumption agreement." This defines who is responsible for altered equipment. Typically, a co-op is responsible for the care and upkeep of the pipes within the walls. But if the owner changes those pipes, he is responsible for their care. When he sells the unit, that care is transferred to the new owner. If that is not spelled out — which is what the assumption agreement is for — there can be confusion and litigation over who pays for subsequent repairs.

By the same token, a board should probably keep detailed records of what has been done in each apartment. If a question arises years down the line, such records will prove invaluable. "If three apartments were joined over a ten-year period, you want them under one certificate of occupancy, saying that they were all joined legally," says Goldman. "If not, it might become a real issue when the owner goes to sell."

NOTIFYING THE NEIGHBORS. Usually, the manager can notify the residents of changes. But you may want your alteration policy to require that the applicant notify the neighbors who will be disturbed by the construction about the nature and length of time of the work. According to Braverman, such a notification should be in writing and stipulate that anyone affected by the work be insured and indemnified against damage.

"Our alteration agreements require that neighbors inform each other of the nature of the work to be done," says Fred Rudd, president of Rudd Realty. "If a tenant is doing demolition above somebody, the noise vibrations can cause cracks, so you want to check out any preexisting conditions, note them, and then check afterwards to see if there was damage done by the construction."

MORE MONITORING. In case of subsequent damage claims, Cholst also suggests a before-and-after videotape and/or photographic record of the elevators and hallway walls surrounding the apartment. "We like videotaping all neighboring apartments before a project begins and notifying neighbors for damage claim purposes," he says.

REVIEWING THE POLICY. After you've crafted a policy that fits the needs, requirements, and image of your property, don't let it gather dust. It should probably be reviewed and updated every few years to be certain it is in line with current laws and also to incorporate lessons learned from the building's previous incidents with alterations.

TALK TO ME

Experts argue that, in developing and implementing any sort of alteration agreement, communication is crucial. The board should make the policy clear to prospective owners at a pre-sale interview. Many boards find that, during the application, review, and interview process, many prospective purchasers are sometimes less than forthcoming to boards about what they plan to do. Many say they will simply redo the kitchen cabinets and the bathrooms. Then, half-a-million dollars later, the renovations have become a tremendous undertaking. You must hold them responsible for being accurate about what they planned to do, and make that clear to them at the start of the process.

Besides offering legal protections, an alteration policy is good for psychological reasons, as well. Having the process spelled out creates an awareness among residents of what they must do. If someone decides to punch a hole for a window through a brick wall or redirect a four-inch water line, they will hesitate before they proceed. If they don't, the policy will have warned them and the board will be on stronger ground if there is a lawsuit.

When drafting your alteration agreement, however, always remember: change can be good; don't create a policy that discourages changes. "You want to encourage people to invest in their property," says Goldman. "Alterations are one method of doing that. They increase the value of the apartment, which increases the value of the building as a whole." It also increases the interest that an owner takes in his home. So it is in everyone's interest to seek out harmony.

"Most boards don't want to have problems with shareholders concerning alterations," observes Ben Kirschenbaum, in-house counsel for Insignia Residential Group, who worked on the REBNY alteration agreement. "But if they don't take care, a shareholder may fall in love with a design even though the board says, 'You can't do it that way.' Then you have a bad situation. In my mind, the problem lies in procedures. If there is a lack of coordination and understanding, you will have difficulties. If everything is made clear to the shareholders at the start, there are no surprises. Things will run smoothly. That's your goal."