Legal Lessons: Amenities

Legal Lessons

Choosing an attorney for your building requires a series of steps. First is taking the task at hand and figuring out what legal skills are required to solve your problem. Then comes the hunt, often through word of mouth, for the lawyer possessing those skills. In the past, many boards have used Habitat’s annual attorney survey to identify potential firms and lawyers. This year, to make that resource more valuable, we have increased the scope of what we asked participating lawyers to provide. Besides the basics (fees, size, areas served, etc.), we asked them to write about typical issues or cases they have encountered and then to offer advice and comment. In doing this, we hoped to capture each lawyer’s unique thinking and tone. And we took some additional steps, too, visiting every attorney’s office and taking photos of him or her so you could see who was telling the legal tale. Digesting the advice and legal cautions will take some time, but for board directors who monitor the legal lines, it’s a good investment.

Permitting Washer/Dryers

Abrams Garfinkel Margolis Bergson

ISSUE Is a co-op board required to make an exception to the corporation’s rules and regulations to accommodate a shareholder with a disability that predated the ownership? What if the shareholder also knew that the corporation’s rule was in place prior to purchasing?

BACKSTORY Recently, a board of directors of a co-op corporation was confronted with an unusual claim. After moving in, a shareholder with a disability had installed a washer/dryer in her unit. The co-op’s long-standing rules and regulations did not permit washer/dryers to be installed. Furthermore, the shareholder had inquired about the washer/dryer policy before purchasing the apartment and was told that there was a laundry room located in the basement and that washer/dryers were not permitted in the apartments of the co-op. Once the board was notified that the shareholder had installed a washer/dryer in the unit, it notified the shareholder that she was in violation of the co-op’s rules and regulations. The board directed the shareholder to remove the washer/dryer from the apartment or be subject to further action. The shareholder promptly filed a complaint with the Department of Housing and Urban Development, stating that the board should grant a “reasonable accommodation” by allowing the shareholder to install and maintain a washer and dryer in the unit and that, by not doing so, the board was in violation of the Fair Housing Act.

The Fair Housing Act states that any accommodations made must be both reasonable and necessary to afford a handicapped individual an equal opportunity to use and enjoy a dwelling. Such accommodations can involve changing a rule that is generally applicable so as to make its burden less onerous on the handicapped individual. Whether a requested accommodation is required by law is highly fact-specific, requiring a case-by-case determination. Courts have held that an accommodation is reasonable where it does not impose an undue hardship or burden upon the entity making the accommodation and would not undermine the basic purpose that the requirement at issue seeks to achieve.

In this case, the board settled with the shareholder and allowed her to keep the washer/dryer in the unit. The board felt that the cost of litigation and the uncertainty of the outcome outweighed the necessity of enforcing this rule to one unit in the co-op.

COMMENT A co-op board should proceed cautiously when it comes to beginning actions or enforcing rules that affect disabled or handicapped shareholders. Even if a potential buyer with a disability knows of restrictions prior to purchasing that could affect their ability to live comfortably, they still may have the right to seek a reasonable accommodation. The nature of the accommodation depends on the facts and circumstances surrounding the request. A co-op board of directors should closely examine any request for an accommodation made because of a handicap or a disability. In the event such accommodation would not place an undue burden or hardship on the co-op or its shareholders, the co-op board of directors may want to consider permitting it, rather than exposing itself to liability or a cause of action.

It should be noted that if a board does permit a reasonable accommodation that otherwise is not permitted to other shareholders, the reason should be documented so that other shareholders do not attempt to violate any rules that have been previously set forth by the co-op board of directors.

One final and important point: one may never ask a person if he or she is disabled. It is up to the person to request a reasonable accommodation based upon a disability. Accordingly, in this particular situation, the co-op board of directors could not have asked the shareholder if she required a particular accommodation because she was disabled.

—Neil B. Garfinkel

Who Pays For Repairs?

Ganfer & Shore

ISSUE Who pays for the repair of a tenant-shareholder’s apartment after a leak from an upstairs neighbor?

BACKSTORY Even though each situation is a separate personal human story of inconvenience and dislocation, one specific example is a good starting point to reflect on how a process works. And it can lead to the question of whether management might want to consider requiring that all tenant-shareholders carry insurance. Believe it or not, the incident recounted here was a relatively uncomplicated situation, the insurance companies involved were professional, and there was no litigation or any argument about who were the responsible parties under the proprietary leases.

The owners of a two-bedroom co-op apartment in a Manhattan building came home from a long weekend to slosh their way over a wet floor and find water dripping down the walls and through a hanging light. The place was wrecked: wallpaper and paintings ruined, floors warped, furniture wet and damaged, items in closets and dressers damp, and the threat of mold was apparent. Even with the water shut off, they obviously wouldn’t be able to stay in the apartment until it was fixed.

The tenant-shareholders went upstairs. The upstairs neighbor, a building friend of many years, who had also just returned from a week away, quickly helped them discover that water was, in fact, flowing down from the tank of a toilet in that unit.

They quickly turned off the water to the appliance. Even with the superintendent on his way up, the not-overly handy neighbors saw that an inexpensive washer on the bottom of the tank assembly was split, allowing a flow that went down the porcelain and to the apartment below.

What followed for the tenant-shareholder and for the building was an education in the basics of how insurance coverage of different parties interacts and how common provisions of the proprietary lease come into play when there is a leak.

The owners called their own insurance company. In a co-op, the tenant-shareholder is a tenant and the apartment corporation is a landlord under the proprietary lease, so the policy is essentially a “renter’s policy.” That policy covers loss of the tenant-shareholder’s personal property and personal installations (the paintings, furniture, wallpaper, etc.) and, depending on the circumstances, the cost or repairs that are the responsibility of the tenant-shareholder under the proprietary lease. (The policy also normally provides liability coverage.)

Presumably, this policy is also normally the first recourse for payment for alternative living arrangements while the tenant-shareholder is out of the apartment. Actually, the policy will usually cover was not for all expenses, but only for what is required to be paid in addition to normal living costs (such as the monthly maintenance charges) as if nothing had happened. (As a matter of practice, some companies occasionally cover the full amount of living expenses, without deduction for what the tenant-shareholder would otherwise pay.)

The reason why this deduction for maintenance charges should not hurt the tenant-shareholder is that most forms of proprietary lease provide for an abatement of maintenance charges for however long the apartment corporation (the landlord) cannot provide a habitable apartment to the tenant-shareholder. (Note that the tenant-shareholder might have an argument outside the proprietary lease that the statutory warranty of habitability would offer them these rights anyway.)

The apartment corporation’s policy should cover the items that the building is obligated to replace, as well as any damage that might be caused by staff negligence by the building staff.

In this case, the proprietary lease provided, as many do, that in the event of damage the corporation would only restore the walls to the basic building “standard,” presumably being the plain vanilla walls and ceiling. Also, the building policy would reimburse the apartment corporation for the loss of maintenance charges from the proprietary lease’s recognition that the tenant-shareholder would not pay maintenance charges while the apartment was uninhabitable.

Under the upstairs neighbor’s policy, the tenant-shareholder, rather than the corporation, would be responsible to everybody for much of the damage, including the fixtures.

The insurers might have fought among themselves over the cost of cleanup and of replacement of items that were damaged. But in this story, the tenant-shareholder who suffered the loss only had to look to its own insurer and then let the insurers settle among themselves.

COMMENT The lesson? The happy fact is that the upstairs neighbors had their own insurance policy. What if they hadn’t? There could have been a world of woe – and lawsuits. Worse, there could have been the problem of recovery against the individual neighbors and the additional time that that might take.

So, out of this comes the question of whether apartment corporations should require that tenant-shareholders carry insurance. Few proprietary leases actually require it. Sometimes, apartment corporations require proof of insurance at the closing. Some observers might feel that it is paternalistic to burden a tenant-shareholder with the requirement to carry insurance, as it is an expense, and the building and other owners would theoretically always have recourse against the owners personally and, ultimately, some equity in the asset of the apartment. However, experience has often shown that the professionalism and quickness of the response of insurers might mean that boards and buildings may want to consider requiring insurance. This might be by a house rule, or even more powerfully, by amendment of the proprietary lease.

—Matthew J. Leeds

Creating Exclusive Roof Space

Seyfarth Shaw

ISSUE Can and should a condominium board offer exclusive roof space areas to its unit-owners for revenue benefits to the building?

BACKSTORY A roof terrace is a desirable amenity for apartment owners. Many buildings have roof space available, and granting areas for exclusive use by unit-owners can generate initial funds and continuing revenues for the condominium. However, a board of managers must initially address certain critical issues in order to avoid expending significant costs and time only to conclude that such plans are not feasible.

We recently advised the board of managers of a condominium regarding its right to license or to change roof spaces to limited common elements for the exclusive use of some units. The roof was a common element; no improvements had been made to it for recreational use and none of the unit-owners were permitted on the roof. At the time we were consulted, the board was deeply into the process of structuring an offer to allow the unit-owners to obtain roof space. Further, we learned that the board had not unequivocally verified that the roof could bear the support of roof decks and other amenities and had proceeded on the assumption that it could. After consulting with the building’s architect and reviewing the amended offering plan and the recorded condominium declaration and bylaws and other documents, we concluded that the board did have authority to enter into license agreements and, subject to unit-owner consent, to offer limited common elements to the unit-owners.

COMMENT Whether it is the proposed exclusive use of roof areas by unit-owners or any other action the board wishes to take that may involve a change in the use of the common elements of a condominium, the board should first seek guidance from its attorney, architect, and managing agent to determine the rights and issues that must be considered.

The first step is to have the building’s attorney review the condominium’s declaration and bylaws and any amendments to ascertain if the board has the authority to grant a license, and/or to create limited common elements subject to the consent of the unit-owners. Further, the attorney should review the declaration and offering plan and their amendments to see if any rights affecting the roof have been retained or have been asserted to have been retained by the sponsor or there are any other reservations or considerations relating to the use of the roof.

The next step is to retain an architect to advise, in consultation with the building’s attorney, what restrictions if any, may exist relating to the use of the roof. The architect should also inspect the roof to verify its condition and advise whether or not it can structurally support the proposed decks and improvements. If the roof must be replaced, it would be the perfect time to explore if the support is present. If it is determined that it is not, the board should obtain an analysis of the projected additional costs to provide such support. Since the roof is being replaced it may be more economical to perform the work at that time (if considerations are being given that in the future roof spaces may be offered).

After that, the board should retain an appraiser to advise it of the value of licensing or offering the units as limited common elements belonging to the units. The board will then be able to determine if it is economically reasonable to expend additional construction costs for licensing or creating limited common elements.

Some of the other considerations in evaluating whether or not to proceed with the creation of roof spaces are:

• The size and location of the units.

• Whether there should there be an additional deck to be used as a general common space for all residents, and if so, how would it affect the use of private decks?

• Whether the board should offer raw roof space or construct the space?

• Whether there are available condominium reserves to perform any additional work, and if not, can financing be obtained and do the bylaws have any lending requirements?

• What rules and regulations for the roof use should be enacted?

• Whether any unit-owners wish to obtain roof spaces?

• Whether there are existing roof warranties that have conditions relating to the decks and/or alterations?

• Who will quarterback the project?

If a board is planning to replace the building’s roof and/or create roof space for exclusive use, an initial analysis of the project’s viability is critical. The structural, economic, and legal considerations can be determined quickly and at a reasonable cost. Then the board will know if there is an opportunity to create additional revenues for the building by dividing the roof into spaces or alternatively create a common area amenity that would add to the use and enjoyment of the building by all of its residents and potentially add value to the units. Learning, months after the process has begun, that the plan to create roof space is not possible or desirable can be avoided by initially consulting with the building’s attorney and other professionals to evaluate the feasibility of the plan.

—Dennis H. Greenstein

Altered States

Smith Buss & Jacobs

ISSUE Is it important to have a complete and accurate alteration agreement?

BACKSTORY Shareholders and unit-owners who make alterations to their apartments are usually required to sign an alteration agreement with their buildings, detailing what they intend to do, how long they will take, how they will conduct their work, and who will be responsible for the alteration after it is completed. Unfortunately, some buildings fail to insist on complete and accurate alteration agreements. Other buildings have not reviewed these agreements for many years to see if what is signed matches the policies that they have in place.

We were recently consulted by a condominium seeking to collect fines from a unit-owner for performing work beyond its deadline. When we asked for the alteration agreement, we found that (rather than using the form we had recommended to them when we were engaged), the managing agent has been using a “standard form” agreement for cooperatives. Several portions in the standard form, including the one specifying the “outside date” for completion of construction, were blank. The building was seeking to collect the fine based on a separate letter from the board specifying an outside date and unilaterally imposing a daily fine if work went beyond it. The letter was not made part of the alteration agreement or acknowledged by the unit-owner.

In another building, the board and managing agent were allowing the owner to make changes to the alterations that were not reflected in the plans attached to the alteration agreement. When the building sought to stop work for an unauthorized enclosure, the owner argued that it had been agreed to by a board member and an agent at an earlier meeting to review shop drawings that were never made part of the plans.

In a third condominium, the alteration agreement was missing from the files. A portion of the alteration was located in the common elements and would ordinarily be the responsibility of the building to maintain. When the alteration leaked, the new owner (who had bought the apartment after the alteration had been made) denied liability and challenged the condominium to prove that the work had been done.

COMMENT Buildings need to make sure that the alteration agreement includes all the “business terms” like the start and stop dates; relevant fees; security deposit; and up-to-date, as-built plans. The agreement has to clearly outline all the remedies of the building in case of a breach, including fines, stopping work, and payment of legal fees. Owners must be told that they will be responsible for repairing and maintaining the improvement even after work has been completed, and successor owners must be made aware of these responsibilities as well. We recommend that condominiums record their alteration agreements so that new owners have legal notice of the work. This option is not available to cooperatives, so more care must be taken to maintain accurate cooperative records. (One purchaser found out about a prior alteration only by reviewing the corporation’s minutes.)

We also suggest that you allow your counsel to review your current form of alteration agreement. Sometimes it has been “inherited” from a prior managing agent, or has not been updated to deal with changing building policies or environmental hazards. The building and the owner will have to live with the alteration agreement for decades; make sure that you start with the correct form and that it is properly filled out and signed when you need it.

— Kenneth R. Jacobs