Building A Better Alteration Agreement

Of all the contracts co-op boards ask me to review, the alteration agreement — the document that sets out the terms and conditions of apartment renovations and combinations — is undoubtedly one of the most convoluted. Why is the typical alteration agreement so dense, so ungainly, so difficult to understand?  

How a mess was born. In answering that question, I am reminded of an old video game called Katamari Damacy. In this game, you start with a little round ball that you can roll along the ground. But this ball has magical powers — things stick to it. At the start, you pick up tiny things like paper clips and matchsticks, but if you roll it around long enough, your ball becomes a giant mass capable of picking up cars, boulders, bridges and anything else in its path.

The alteration agreement has had a similar life cycle. Many years ago, the original alteration agreements were simple affairs — sometimes no more than three or four pages describing the proposed renovation and the board’s approval of it. However, once co-op boards began to realize that an apartment renovation gone bad could cause headaches for everyone in the building, their lawyers began adding ever-denser insurance and indemnification provisions and other measures to protect the cooperative. 

Then others got involved. Management would add fee schedules, checklists and filing instructions. The co-op’s architects and engineers, often guided by issues raised in prior renovations, would suggest specific rules and guidance for mechanical, electrical and plumbing work. Then along came COVID-19 protocols, cleaning rules and other contractor restrictions. And this whole agglomeration was assembled without much order or organization, because these contracts are rarely subject to negotiation or outside scrutiny.  

How to clean up the mess. These days, it is not uncommon for alteration agreements to run 70 pages, and those pages are often, to use the technical legal term, a mess. Now that we understand how many co-op alteration agreements got to be the way they are, what should be done about it? It depends on the building. Some co-op boards are almost hostile to renovations — or at least to the noise, disruption and risk they generate — and are more than happy to have a forbidding alteration agreement on file.  

However, I would submit that no matter what a board’s position on renovations, an alteration agreement should strive for clarity and coherence. Shareholders should be able to understand the steps they need to take to complete the renovation, the fees and costs they owe, and what the consequences will be if something goes wrong. The shareholder’s architect should be able to read through the agreement and understand which building-specific quirks and challenges will constrain the renovation’s design. The contractor should be able to use the alteration agreement to instruct tradespeople how the work is to be performed. This can all be done without sacrificing any of the protections and institutional memory that the alteration agreement has picked up over time — if the board and its attorney work together in drafting a new agreement. 

The benefits of clarity. Most co-ops would love to be more price-competitive with condominiums, which do not typically use the same sort of comprehensive alteration agreements. One reason why condo units are generally more valuable than co-op apartments is that co-op boards are seen as too intrusive and overbearing. That reputation, as unfair as it may be in most cases, is in no small part a result of the typical co-op alteration agreement. Indeed, as a colleague once dryly remarked, “A condo owner is a former co-op owner who tried to renovate his apartment.” Co-op boards should strive to take the sting out of quips like that.