Co-op's Budget Strained by Water Damage and Embassy Dispute

The board found itself in deep water. At the Upper East Side co-op, water was pooling in the boiler room, and the repairs had escalated to six figures, stretching the building’s budget. Reserve funds at the co-op had just covered a boiler replacement, forcing the building to scramble for a $300,000 loan at a steep interest rate. The predicament illustrates why it is critically important for co-ops and condos to have sufficient reserve funds to deal with infrastructure projects. The ideal scenario is to have a five- or ten-year plan not only for necessary maintenance projects, but also for surprise emergency repairs.

Diplomatic Tangle

The first step in dealing with water damage was to establish the source of the leak. A camera snaked into the pipes revealed that the city's main water line was seriously corroded. In order to fix the problem, a trench needed to be dug through the bottommost floor of a triplex unit which was located at basement level. “That’s when we discovered the neighbor's sewage pipe had collapsed and water was seeping into the soil, flowing into our property and making its way into the boiler room,” says Aaron Weber, a property manager at Weber Realty Management. The neighboring building, however, is an embassy, which added another layer of complications in finding a solution to the leak. 

Detrimental Delays

The co-op went ahead with repairs by bringing in a company to dig up the corroded main line and install a new pipe on street level as well as a new water shut-off valve. “The cost for the main water and sewer line was about $120,000. Another $60,000 was needed to cover excavations and to restore the basement unit back to original condition,” Weber says. But water was still coming in from the neighboring embassy. Unwilling to work with the co-op’s plumber, the embassy was not moving to fix its pipes, which delayed repairs to the shareholder’s triplex apartment. 

An attorney’s letter to the embassy seeking prompt resolution and its insurance details did not help. “The legal letters spooked them,” Weber says. The embassy then involved their own counsel at every step, which further slowed the repair process. The co-op will likely file a lawsuit against the neighboring embassy as advised by the building’s insurance broker. Meanwhile, the shareholder whose apartment has been affected has also filed an insurance claim against the co-op.

Paying the Bills

Delays aside, the co-op’s depleted reserve funds became a key issue for the board. It reached out to its insurance carrier, but learned the building was not covered for the main line water leak. “In New York it’s unique that the sewer and water mains are the building's responsibility,” Weber says. “Similar to sidewalks, if you have an uneven one, that's the building's responsibility and not the city’s. It was a big shock for the board.” 

Making matters worse, the co-op shareholder — who could not use the lower third of the apartment — began withholding maintenance and insisting on a structural engineer’s report. “A lot of costs were piling up,” Weber says. To pay its mounting bills, the co-op closed on a $300,000 line of credit from the National Cooperative Bank with a 6.25% interest rate. “An assessment will be necessary in the future, but right now we're able to stay in good standing with all the contractors thanks to the financing,” Weber adds. 

The Importance of Being Proactive

It’s possible the building’s water and sewer main damage was the result of utility work in the street and a fiber-optic cable installation. Weber suggests that co-ops and condos check their lines after road repairs or any excavation to ensure their mains and sewer pipes remain intact. He also advises boards to start getting financing as soon as they face an emergency repair — or better still, don’t deplete your reserves. “When there's an emergency, not everyone can afford an upfront assessment,” says Weber, who recommends buildings have access to a line of credit and at least a year's worth of maintenance in reserve. 

-Emily Myers