The Never-Ending Story

It’s a New York tale that’s being told more and more frequently as the economy and the real estate market continue to rebound. A buyer in a 26-unit co-op in Tribeca decided to make extensive renovations on his new home before moving in. The co-op’s board of directors gave the green light, and work began.

A year later, it was still going on. And with it, the disruption. The dust. The contractors. The noise.

Cut to: two years later. The work was still going on. The contractors. The dust. The noise.

The patience of shareholders was wearing thin, so the board decided to check the shareholder’s alteration agreement to find out when the work was supposed to be completed.

There was no date.

Because of an oversight, it had been left out of the agreement. Therefore, the renovation could, theoretically and legally, drag on forever. The contractors. The dust. The noise. Going on forever and ever…

Luckily for the board and everyone else in the building, the new owner was amenable to a settlement, and the work is finally nearing completion.

But that Tribeca co-op had gotten the mother of all wake-up calls. In this age of increasingly elaborate, costly, and time-consuming apartment renovations – and the many headaches that come with them – it was time to tighten up the building’s alteration agreement. Earlier this year, the board, working with its lawyer and managing agent, put together a new 15-page agreement that is tailored to the shareholders’ needs and the quirks of the early 1900s building.

“The critical thing in the new agreement is that it’s very clear on the completion date,” says the co-op’s attorney, Dennis Greenstein, a partner in the firm of Seyfarth Shaw. “Not only is there a specific deadline for completion, but there are conditions for getting an extension, and what the cost will be. We also tightened inspections by the building’s architect, and he has to sign off on them.”

Failure to comply

Two common problems in renovations are that the jobs don’t get done on time and the contractor fails to comply with the hours and days his crew is allowed to work. To address these issues, the co-op now requires the contractor to read the new alteration agreement and sign off on it before work begins.

“They wanted to be fair to shareholders and to the building,” Greenstein explains. “It was easier to stick with the critical points in our original alteration agreement and modify certain things – enforcing the completion date, the cost per day for extensions, the definition of ‘cosmetic’ work that’s permitted after completion.”

Also, because of the building’s age, the use of jackhammers is now forbidden. The agreement requires the engineer to sign off on plumbing and electrical wiring before walls can be closed. It makes the renovating shareholder responsible for any damages resulting from modifications to such items as windows, plumbing, or flooring. Further, when selling the apartment, the shareholder must notify the buyer about the scope of the renovation and the new owner’s continuing liability for it. No more than three of the building’s twenty-six units can undergo a renovation at any given time.

The board’s president, speaking on condition of anonymity, says: “There are three main things about an alteration agreement: it has to be detailed, it has to give the board [options], and it has to be enforced. If we specify the fines for missing the completion deadline up front, then the shareholder can shift that burden onto the contractor in his construction agreement.”

Keeping on top of a renovation’s progress was another goal of the new agreement, the president adds. “Part of the problem was that we would sign off on a renovation and nine months later, we would find out there was a delay. As a board, we wanted more updates from our architect because we realize things get delayed for reasons beyond anyone’s control.”

Fees – a conflict?

At this particular building – as in most co-ops with alteration agreements – making sure that everything runs smoothly is up to the managing agent. In this case, Timothy C. Grogan, president of Grogan & Associates, reviewed the construction contract, made sure that the security deposit was paid, and checked that all insurance and Department of Buildings filings were in order and that periodic inspections by the building’s engineer or architect were performed on time. For this, he was paid a $450 fee by the shareholder whose apartment was under renovation.

Some contend – since he is representing both the corporation and one of its shareholders – that this fee paid by the resident opens the property manager to a conflict of interest charge. Grogan disagrees, noting: “I’m just providing a service to the co-op that’s paid for by the shareholder. I want to make sure that the building is protected and there’s no liability.”

Paul Brensilber, president of Jordan Cooper & Associates, requires fees ranging from $500 to $1,000 to oversee renovation jobs. “Whatever the fee is, it’s too low, it should go up,” Brensilber says. “We meet with the contractor and go over the rules of engagement – how to get construction materials into and out of the building. Deliveries are a problem. These are becoming monumental issues because of the extent of some of the work that’s being done today.”

Where some see this fee as a conflict of interest – how can the manager serve two masters? – others see the possibility of a more subtle – but potentially harmful – misunderstanding. “When the managing agent is paid this fee, he doesn’t become the project manager or the construction manager,” observes C. Jaye Berger, a Manhattan lawyer who specializes in co-op, condo, and construction law. “Some people who are renovating their apartments mistakenly think that, because the managing agent is observing the job, he works for them. The agent is there to make sure there isn’t damage to the building and that the shareholder does what he said he was going to do – and not more.”

By most accounts, managing agents perform a vital function in a process that can get downright byzantine. “The managing agent needs to play a role,” says Scott Greenspun, a partner in the law firm Braverman Greenspun. “The fee [he gets] is not to perform services for the shareholder. The agent is working to protect the interest of the co-op, and the cost of the work the managing agent does to make sure that everything’s done according to the rules and regulations is passed on to the shareholder. There’s no free lunch.”

CUSTOM-TAILORED

In the 1990s, the Real Estate Board of New York (REBNY) put together an alteration agreement that many co-op boards adopted verbatim and others used as a starting point for tailoring an agreement to their building’s needs. The agreement is currently undergoing one of its periodic revisions.

“It’s good to update it every once in a while,” says Angela Pinsky, REBNY’s vice president for management services. “What we want to do is create a document that will help co-op boards manage this process. They should have an architect reviewing the plans of the shareholder’s architect.” The current 11-page REBNY alteration agreement includes a 22-point checklist. The goal is to be both thorough and expeditious. “There has been an increase in renovations,” Pinsky says. “The longer the approval process takes, the crazier people get.”

Michael Wolfe, president of Midboro Management, is chairman of the REBNY committee that is working on the revisions, which should be completed within a year. “We’re looking at the entire document, trying to come up with a customizable [version],” Wolfe says. “We’re trying to bring it up to date with current laws, building codes, construction practices, and other realities. We’re trying to remove any ambiguity.”

“The standard REBNY agreement is very complete,” says Brensilber, the property manager. “But some of my buildings pay lawyers to draft their own unique agreement. They tend to do this when they want to set penalties for running overtime on a renovation project.”

As the board of the Tribeca co-op learned the hard way, even if you have an alteration agreement in place, it’s important to make sure that you cross all the t’s and dot all the i’s and leave nothing blank. Otherwise your neighbor’s renovation project will share one quality with diamonds: it could last forever.