A Conversation About: Share Allocation

Anonymous: I am on the board in a 100-year-old co-op. Back in the 1960s when it was converted, the shares were not equally allocated since the apartments were in different configurations then and about half have since been cut up. As a result, the larger original apartments enjoy a much lower share allocation per square foot than the other half of apartments in the building. Since the shares cannot be reallocated, does anyone have a suggestion on how to create a more equal cost basis amongst apartments? Thanks for anyone’s help.

HG: We, too, have an old building, and a number of apartments have been combined or taken over a room from another apartment. But, this was taken into consideration when the mergers were applied for and shares reallocated.

The building lawyer, as well as board members should have taken care of each individual apartment reconfiguration. I would strongly advise the board to have your lawyer look into it. If there is a board member benefiting from this, since they now know the rule – they should immediately move to have this resolved.

If the rest of the co-op gets wind of this, there could be serious problems.

Anonymous: Thanks for your message, HG. We are way past that point. Lawyers have looked into this numerous times and nothing can be done to reallocate shares. That is why we have thought about evening the playing field with some other sort of charges. It’s not the mergers that created the problem, it was the original unit-owners that converted the building and gave shares to the storage areas and maid’s rooms, which are individual units today.

AdC: To change the distribution, you may need every shareholder to agree to redistribution. Unfortunately, when it comes to redistribution of wealth, there are very few if any who may gladly embrace the idea. In this case, those who are benefited by the current distribution of shares will hold on to the status quo and will not vote in favor of such a distribution. Therefore, due diligence is critical when buying units and making sure that the apartment that is of interest is not unusually endowed with an unfair distribution of shares. Good luck!

Anonymous: I know, I know. We would not even attempt to reallocate exactly because of what you describe. Instead, I believe we can even out the inequality by charging apartments with a lower amount of shares per square foot with other charges that are now split equally. Have you heard of anyone doing that?

CDT: Unless you can demonstrate that an apartment is consuming a larger share of a specific resource – by submetering, for example – then all the charges must be on a per-share basis. Any attempt to reapportion charges based on subjective criteria is extremely questionable and could land you in serious legal trouble.

Anonymous: The resident manager prepared a cost per share versus a cost per square foot analysis and it varied from $1.30 to $3.05 per square foot of maintenance. There is no submetering in place because not all of the apartment’s infrastructures have been properly upgraded. As a result, any building-wide charges or assessments based on a per share basis are widely disproportionate and constantly creates a division in agreement about any projects.

AdC: I believe you will have a major litigation if you were to do something like that! You cannot charge phantom charges just because you wish to become Don Quixote. H