Educate the Board

Six months after I moved into my first co-op apartment, the board called a special meeting of shareholders to tell us that the building’s reserve fund had “disappeared,” that the building was tens of thousands of dollars in debt, and that there had to be a special assessment. Not surprisingly, the board was replaced at the next election and, because of what I do for a living, I found myself president of the board of a building in which I knew virtually none of the residents.
In short order, we fired the managing agent and the superintendent, eliminated the assessment, redid the heating system, and redecorated the lobby to add value. How did we do it? Simply by selling the doctors’ offices on the first floor. Notwithstanding the terrible news, the worth of the apartments had appreciated by the end of the year.

Six months after moving into my second co-op apartment, I found myself on another board, hearing that the engineer had told the directors that Local Law 10/80 work was going to cost about $1 million. I asked if any of the board members had looked at the Local Law 10 report and, when I learned that none had, I asked if they would mind if I did. When I reviewed the report the next day at the managing agent’s office, I was amazed to find that there was nothing substantially wrong with the building – that, in fact, there was nothing immediately pressing. I asked the agent about this and he told me that he thought the engineer was protecting himself with worst-case scenarios in case he had missed something in his review. I reported this back to the board, the work was shelved, and it was ten years before we actually had to do any local law work.

These two stories are not intended to demonstrate that you should be attempting to entice me into your buildings – moving would necessitate cleaning out the closets and I am not up to that – but, rather, to show the kind of attention to detail and knowledge base that is required to be a board member. The co-op or condo building in which you live is not only your home and, in most instances, your largest single investment, it is also an asset that might be worth millions of dollars. And each board member is a fiduciary, representing every resident in the care and upkeep – both financially and structurally – of the property. That’s a heavy responsibility.
In the past, professionals, experienced in the real estate business, would operate such an asset. Co-ops and condos are unusual because the decisions are not made by such professionals but by amateurs – volunteers who are usually untrained in real estate and have full-time jobs elsewhere. For years, those of us who provide professional services to cooperatives and condominiums have recognized the difficult job of boards, consisting of doctors, lawyers, teachers, business people, mothers, writers, and artists. They generally do not have the knowledge base to maximize the value of the asset while minimizing the costs.

Boards need information. In the 1970s, when we started the Council of New York Cooperatives & Condominiums, the intention was to provide co-op and condo boards with a resource to help them operate their buildings, but in those days, there were only a few hundred buildings and they were mostly small. Times have changed and now there are close to 7,000 cooperative corporations and condominium associations. The value of the apartments has skyrocketed – and so have the problems a board has to face.

At the same time, the media image of boards is not good. Typical is Charles Grodin’s recent Off-Broadway play, The Right Kind of People, which depicted a board of directors, blithely ignorant of the laws or of the proper way to run a building, who also discriminated as a matter of course. Such an image is so pervasive that, almost every year, the city council and the state legislature make boards the poster children for improper and illegal behavior. That, despite the fact that you can count on one hand the number of instances of boards actually misbehaving. However, newspapers don’t get sold and politicians don’t get elected based on positive stories.
Consequently, there are more laws and regulations that have to be satisfied. Indeed, various levels of government continue to make it more difficult for boards to operate by piling on new and different laws, rules, and regulations, while the courts and administrative agencies continue to second-guess boards. Now, an innocent mistake can cost a board member his or her net worth.
These days, boards need more than information. They need education. To that end, my suggestion is to train and certify the board members. This will require an effort by all sides. The insurance companies must lower premiums for the cooperatives and condominiums whose board members are certified.

Government bodies must be asked to participate – and be educated, too. The city council and the state legislature must provide that no new laws will be enacted affecting co-ops and condos without the preparation of an impact statement specifically indicating the purpose of the legislation and the effects and costs it will have on a building and its residents. Likewise, the city agencies should be required to prepare the same kind of impact statement, so that a problem that one individual is having with his/her board does not require an entire industry to live with an absurd result.

Finally, our local government officials have to stop assuming that boards are evil and only interested in enacting arbitrary and capricious rules. Unlike other elected officials, board members have to live with their constituents – which, in the end, is a very effective way of ensuring proper behavior by the board.