Revising Bylaws - Condo Style

Never underestimate the power of the opposition. That is the hard lesson Rudd Lawrence, president of his West Side condominium, and his fellow board members learned last May. That’s when they watched in dismay as months of work revising their condominium bylaws sank under a wave of opposition at the building’s annual gathering.

“People were showing up who had never come to a meeting, all hot under the collar,” recalls Lawrence of the scene at a local school auditorium, where the session took place. In hindsight, says the president, it was clear where he and his colleagues had gone wrong. They had reviewed all their bylaws, reworked the provisions, sent out a notice to the unit-owners about the changes, but had failed to take the crucial last step: they hadn’t taken the time to campaign for the changes.

“Over the years, the sponsor made a number of amendments, some of which were poorly drafted and unintelligible. We did a lot of cleanup to focus on having bylaws reflecting reality,” recalls Lawrence of the hours the board spent going over the bylaws. Along with clearing up vague and confusing language, tightening up the conflict-of-interest provisions, and adding mediation as a step toward resolving legal disputes, the board did one thing that was sure to be controversial: added a sublet charge.

“Now, there is one owner in the building who owns a couple of apartments and he completely freaked out, and started putting out vast volumes of misinformation, because he didn’t want to pay a surcharge on his very profitable sublets,” says Lawrence. “We responded to some of his charges, and figured we’d talk about the rest at the general meeting.”

But by then, of course, it was too late. The unhappy unit-owner had galvanized enough opposition so that the board was forced to table the vote on the revision. Instead of starting the fiscal year with a set of up-to-date bylaws, the board members were left to chew over their mistakes. It was a bitter lesson to learn, admits Lawrence. “Unfortunately, there are always people with self-interest, or whatever biases they may have, who can throw the best-laid plans into chaos.”

Welcome to bylaw revision, condo style.

While it’s rarely easy to pass a bylaw revision in a cooperative, in a condominium, it’s often twice as hard. “I get calls lots of times [from boards] saying, ‘We want to update our bylaws,’” notes Linda Plotnicki, a partner in the law firm of Kaufman Friedman Plotnicki & Grun. “I say, ‘That’s nice, but what is your goal?’ Because every single topic you raise is going to have some comment from somebody.”

First, there is the issue of getting all the condo board members to understand and appreciate the need for the changes. Then, they have to sell the idea to the unit-owners. After that, they have to clear the hurdle of garnering a supermajority in support of the revisions, either at a special meeting or an annual one. And, again, condo boards are usually at a disadvantage compared with co-ops. Although some cooperatives can amend their bylaws by written consent, not many condos can. While a co-op will often need a supermajority of sixty-six-and-two-thirds percent to amend the bylaws, in a condo, that figure can go as high as eighty to eighty-five percent. And “it’s very hard to get the percentages without real effort,” notes Plotnicki.

Why Revise?

Given all the headaches involved in trying to amend a condominium’s bylaws, why would a board even want to try? For several reasons: to clear up confusing or contradictory amendments; to streamline the management of the building; and to protect the board and the building’s assets in case of problems in the building. “A lot of boards have inherited their bylaws from the sponsor, [and they] were written for the sponsor, not for the community of unit-owners,” points out Craig Schiller, chief partner at the law firm of Schiller & Associates. “A lot of it is legal boilerplate that isn’t relevant.”

Sometimes a condominium’s bylaws can be ambiguous – it is not clear who is responsible for problems in the building’s operating systems, for instance – or silent – about issues of potential board liability, for example. “What if there is a leak in the building, and the condominium owners aren’t required to have homeowner’s insurance? Who do you think is going to be sued?” asks Schiller. In New York City, where multimillion-dollar apartments are stacked like pancakes, “a little problem in one becomes a big problem in another.”

But the primary reason why boards consider revising their bylaws, which can mean a significant investment of both time and money in legal fees, revolves around their ability to control the finances of the building, say most real estate attorneys. Usually when boards are looking to change their bylaws, it is for two reasons: to increase the amount of money they can spend without unit-owner approval, and to introduce new streams of revenue into the building, through a flip tax and/or a sublet surcharge.

While every building has different needs, the No. 1 factor driving most revisions she is seeing, says Plotnicki, “is to change the limits on expenditures by the board. Most co-ops do not have a limitation on the board to spend money. In condos, typically there is a very low threshold beyond which the board needs to get unit-owner approval.”

This is true in both older and newer conversions. “So that means, when you want to replace your roof [or] do façade work, it requires you to go to your unit-owners” for approval. As a consequence, in trying to make decisions in their building, “many boards feel their hands are tied.”

Another reason that boards are often interested in amendments is that they want to tighten up the language around the right of first refusal. Typically, the bylaws have a very strict rule: a board must reply to a valid offer of sale within 45 days or less. “That’s a very stringent requirement,” notes Plotnicki, especially if the board is obligated to get unit-owner approval before exercising the right of first refusal.

Finally, condo boards are concerned about fees and revenue streams. Can they institute and collect fines? Can they add a surcharge fee or a flip tax? Are they protected if they have to sue to get an owner to pay his or her common charges?

“Most condominium bylaws have very limited circumstances in which they can recover attorney’s fees against a unit-owner in arrears,” says Bruce Cholst, a partner with the law firm of Rosen & Livingston, and most condo boards want language to protect them if they have to sue to get the common charges.
But lately, says Cholst, more condominium boards are looking for new ways of raising revenue apart from increasing the common charges. While some condo boards have tried to institute a sublet fee, many have been flexing their muscles in a new direction and trying to institute a flip tax. Common in co-ops but less so in condominiums, the transfer fee is a serious possibility. “I’ve gotten four phone calls in the past two months from buildings that want to know more about flip taxes,” Cholst notes.

When to Revise

So when should condominium boards start looking at their bylaws? Should they do a periodic annual review? Or can they avoid the task for longer? Again, each situation is different. “If a building was converted 20 to 30 years ago, the likelihood is they haven’t incorporated the most recent, operable bylaws,” explains Cholst, “whereas if it is brand new construction, the offering plan probably has the most recent changes.”

In her experience, Plotnicki says boards start looking at their bylaws only when they start running into problems, like not having enough time to exercise their right of first refusal in leases or sales, or having difficulty in paying for the necessary maintenance and upkeep of the building. Usually, she says, boards start realizing they are having problems within the first few years after taking over control of the board from the sponsor. “When they actually get into the real operations and understand what the restrictions are, that’s often the time when the board realizes that they have things that don’t work for them.”

For the board members at Le Premier Condominium, a 50-unit building on Manhattan’s West 56th Street, the decision to revise the bylaws last summer was one that dawned over time. “I had served on the board once before and had been looking at the bylaws and thought there were some things that we needed to change,” explains the current board president, Lynn MacDiarmid. “It was just a matter of making a presentation to the other board members” to get everyone else to agree.

The board didn’t need a lot of encouraging to take a second look at the bylaws. Written in 1982, when the building was constructed, many of the provisions had long been in need of fine-tuning. While some of the provisions were extraneous, such as requiring notices of annual meetings to be sent to unit-owners by registered mail, others were out-of-date, such as the requirement that the board hold the annual meeting on the same date every year – something the condominium had not done in years.

But, ultimately, all nine members were in agreement over the change because of the limit on operating expenses. Under the bylaws, the board could spend up to $10,000 on capital expenditures without unit-owner approval. “You can’t even get a boiler today for that amount of money,” says MacDiarmid.

And collecting the proxies meant getting people to support added expenditures, which is an uphill battle. Unit-owners forget to send in proxies for the special meetings, leaving the board members scrambling to get approval to pay for necessary repairs on the building.

“We had provisions that were out-of-date financially, spending limits that needed to be revised upwards, and provisions that were unwieldy. We wanted to make [the bylaws] a more user-friendly process” for the board, says MacDiarmid. The condo hired an attorney, amended the language, and then mailed out notices last July to all the unit-owners, alerting them to the proposed changes and setting a date for the special meeting, the first week in June, when the vote would be held.

After the meeting notice and proxy form were sent, the board went into action. “We worked like crazy to get the proxies in,” recalls the president. Each of the board members was given a number of unit-owners to talk to personally about the amendments. Board members made phone calls and stood in the building’s lobby for several nights in a row to pigeonhole people as they came home. “It was a lot of work, but when you need sixty-six-and-two-thirds [approval] it was the only way to get it done,” observes MacDiarmid. After a week of hard canvassing, the board members’ efforts paid off. By the time of the special meeting on August 4, 80 percent of the unit-owners had sent in their proxies, and the amendments sailed through.

Selling the Revision

In the case of Le Premier Condo-minium, the board knew what to do. MacDiarmid explains that her board was able to come up with a strategy for success because it had already seen what had happened when board members don’t take the time to communicate and campaign. The case in point was a failed effort to redo the condo’s lobby several years ago. The board members at the time had hired a designer, selected a design, put it in the lobby, and then asked for a vote. The design had been rejected.

“They just assumed everyone would like it,” recalls MacDiarmid, who says the board members were taken aback by the opposition. Because they hadn’t taken the time to get resident input, some of the owners became angry, says MacDiarmid. By the time the board held a meeting to let everyone air complaints, it was too late. There was no way the board was going to get the approval it needed and all because the board had failed to effectively communicate.

“People were upset that they hadn’t been consulted. We learned a lot from that,” adds MacDiarmid. That experience “made us realize that in order to get these things done, you have to put in an awful lot more work. You have to have a lot more communication with owners in the building.”

To pitch the idea effectively, MacDiarmid notes that before she even talked to the board about the bylaws, she went on the web and did a calculation: what would $10,000 in 1982 be worth in 2004. That way, when the unit-owners asked her how the board came up with the request for a $25,000 expenditure limit, she could explain. Her recommendation to boards thinking about embarking on a bylaws revision: don’t just have solid reasons for doing it, but also “have a plan you follow to get people on [your side].”

In her condo, the selling strategy was to divide up all the owners and have each board member make a personal pitch. In the case of her condominium, it worked. It was the one-on-one contact that made the difference. “Once you do that, people are much happier. They just don’t like being left out of the loop.”

Lessons Learned

If a board wants to amend its bylaws, “you really have to sell people on it,” says James Glatthaar, a partner with the White Plains law firm of Bleakley Platt & Schmidt. It’s not enough; simply to have well-written bylaws, board members need to go door-to-door and sell the concept so unit-owners understand what the board is trying to accomplish and how it will ultimately benefit everyone.

That’s the lesson that the board members of the West Side condominium took away from their annual meeting last year, and they have already been working to address their communication lapses. In preparation for the annual meeting this year, the board will be re-presenting the proposed amendments. This time around, the suggested sublet fee will be on its own ballot line, so, if it doesn’t pass, “that doesn’t keep us from having clean, operable bylaws,” explains Lawrence. Listening to the unit-owners last year at the annual meeting provided an important lesson: if the board members want support for their initiatives, they have to let people know what’s going on. Now, every few months, the board puts out a newsletter, very “low-key,” says Lawrence, just to let people know what the board is considering and what is going on in the future.

All was not lost at last year’s meeting, however. Although some unit-owners showed up angry, by the end of the gathering, at which each board member addressed the questions of the unit-owners, the mood was considerably lighter. By giving people a chance to air their concerns and grievances and taking time to answer the questions, “it put things in context of what we have been doing in the building,” explains Lawrence. “People who showed up hot under the collar came away saying, ‘You guys are doing a good job running the building.’”