Firm But Flexible

Stephen Mack sees cooperative living as just that – being in a community where everyone is cooperative. Therefore, when he finds a fellow shareholder in trouble, he tries to be helpful. As board president at 208 Fifth Avenue, a 12-unit rehabilitated Manhattan building, he considers that part of his job. Kelly Molloy, board president at Lakeland Estates, an 80-unit complex in Long Island, also sees co-op living as community-based and tries to assist any neighbors in trouble. Yet when Mack and Molloy confront similar requests from their respective owners – to sublet because of the harsh economic conditions – their answers are starkly different.

“We believe you should be flexible, especially in this economy,” says Mack, whose building has a restricted sublet policy (a year minimum and two years maximum, after which time it is reviewed and renewed at the board’s discretion). “We chose to live together; we are a community. You have to kind of remind yourself about that every once in a while. Everyone has busy lives and we don’t see each other [socially] a lot, but at the same time, we’re a community.”

But Molloy sees community a bit differently. “I understand what [losing a job] is like, however, we can’t just make exceptions for one person where other people are probably in the same circumstance,” she notes, adding that if you consider everyone’s situation, then you should also worry about the co-op’s senior citizens, some of whom are also struggling. Fair is fair. “I feel for them all, but what can you do?”

Two board presidents, two sharply contrasting responses. Is one too soft, the other too harsh? When do the needs of the many outweigh the needs of the few (and vice versa)? Alvin Wasserman, director of Fairfield Property Services and manager of Molloy’s co-op, observes that the current recession has created an unusual number of arrears problems and/or requests for subletting, and many boards are wondering how to cope.

To some, being firm is a question of ownership. Are you committed to the building as a home or are you just an investor? Mack, who has been a resident in the property (located in the Flatiron District), since 1979, says the board would take a hard line “if a shareholder were speculating, and he bought a place here but didn’t live in it. If someone like that fell behind in maintenance, then we’d say, ‘You have to pay or move out; you don’t even live here! So sell your place and move on.’”

Molloy comes by her firm position from personal experience and a belief in what was right for the property, a 10-building complex. “I moved into the building in May of 2003, and I lost my job in January of 2004,” she explains. “I found work – I waitressed, I worked in offices to stay afloat and pay my mortgage. It came to a point where I wanted to sublet. But because it was not allowed in the community, I didn’t even approach the board. In speaking to people, I was sure I would not be approved. I was sure there were plenty of other people who were in my situation, and I understood that sublets could get out of control. I feel for the people during this dark economic time. But rules are rules. It was very difficult for me to lose my job. Your whole life changes. I think some things happen for a reason.” She says she eventually retrained herself for a new career as a schoolteacher and is much happier.

Both make good points, but as Jeff Weber, principal in Weber-Farhut and manager of Mack’s co-op, notes, boards should look at the economics of the situation when they are weighing how tough they should be. Lynn Whiting, director of management at Argo, agrees. “With arrears, if you’re going to make a policy to get them to pay you back, that really has to be looked at on a case-by-case basis. As part of the monthly meeting, we review an arrears report, which lists who hasn’t paid. And it’s almost always the same cast of characters; with some people, it’s just their nature. You pay, and then you don’t pay for three months, and then you pay something. If someone is always chronic like that, I’d be less likely to be lenient. But with someone for whom it’s an aberration and who makes a good faith attempt to pay something, then I’d say boards should be flexible.”

Peter Lehr, director of management at Kaled, adds that if you are faced with a rash of sublet requests, you should be a little stricter. “You don’t want subletting to get out of hand,” he says. “But if you have only one or two real hardship cases, you can be a bit more flexible. You can work with them.”

At Mack’s co-op, for example, a shareholder in arrears offered a solution: he would sublet his apartment for six months to someone who could pay in full, while he worked out his financial problems from cheaper digs. It seemed like a workable plan to the board – which had to okay the shorter-than-normal-term sublet – and the directors felt they would get the co-op its money without defaulting the owner with his lender.

“We worked with him on that,” Mack recalls. “He presented a very nice candidate, and, of course, all the responsibility stays with the shareholder. That was clear.” Although the owner had initially requested a six-month lease, which the board okayed, that was later extended to a full year. “So far, so good – we’re getting maintenance, plus a substantial amount of the arrears every month,” says Mack. “In another six to eight months we’ll be right back up to speed [on maintenance payments] with that shareholder.”

Whiting says boards should always consider the big picture in deciding on its stance. “During hard economic times, boards should allow sublets in cases of hardship or job relocation,” she notes. “In these times, boards are going to be more flexible and should be.”

She cites a couple of cases. In one, a man became infirm and had to move. Although he immediately put the apartment on the market, months later it was still unsold. Another couple in the same building got a divorce. She was the one with the money – and moved out – and he was the one with a job with Legal Aid. He couldn't afford to maintain the apartment, so he put it up for sale. But it's been on the market a long time.

“In both cases,” Whiting says, “the owner has been reasonably trying to sell the place.” The management executive says sublets in such situations make sense, since your goal is not to bankrupt the owner – or ruin his equity with the lender, whom you can always call in – but to get your monthly maintenance covered.

“You can give them a certain amount of time,” says Whiting, “but it's not carte blanche. The people should clearly be experiencing a hardship.”

“It’s a terrible time,” observes Mack. “A lot of people [have been fired]. We have been pretty lenient with all that. We feel that a creative solution is better than a dramatic one. Give it as much time as you can. After all, it could happen to you.”