DBO,

I have a few questions for you regarding your post. The first is whether or not the current Sponsor holds a majority on the Board of Directors or if per the Offering Plan, majority was given up 5 or so years after the initial offering. Since it is a 1983 conversion, I'll assume that the Board is Shareholder controlled.

If the Shareholders hold the majority, then the Sponsor would be held to your decisions, whether or not you decide to go on with an assessment. If the Sponsor still holds a majority and the Sponsor refuses to do anything but use the reserve funds, you can always in the future draw upon the line of credit for any emergencies that come up. That's a worst-case scenario.

I don't think that in this market you'll have an issue with the Sponsor selling out. Prices are not in their favor right now and they'll probably hold onto their position for the foreseeable future.

Since you have been given the directive from the insurance/mortgage and city to do the work that has been noted, you have an obligation to do it and will need to resolve a way to get it funded. It seems as though the Sponsor won't have a choice as long as they don't currently have a majority of the Board.

Please let me know if you have any other questions.

Thank You for your comments, yes currently the owners have the majority of voting 3 vs 2 sponser reps with a total of 5 memebers.

DBO, I'm afraid my reply to your question on required work and your sponsor would be very long. Maybe I can write an abridged version after we hear what some posters have to say.

But I have a few questions for you. If you went coop in '83, how can your sponsor own 55% of apts? Didn't he have to sell a higher percentage of them to get approval for coop status? And why does he still own so many after 26 years? I assume that means 55% of your apts are still rentals and only 45% represent shareholders. (??) Just wondering.

I have been in the building two years and have asked myself the same question. The building went co-op in 83, yet the sponsor still owns and rents 55% of the apartments in the building. IN fact more worrisome - they have been sitting with about 6 apartments empty for more than a year - 3 of them with monthly charges of more than 1K...
I have seen no effort to attempt to sell them, let alone a serious push.
We continue to increase the pressure slowly, and I think an assessment will be good medicine for them, as we will be able to use at least the current abatement and just pay a small amount, the sponsor will need to pay up out of pocket... It’s an odd situation which will end one day I hope, but as a new board member, I don’t want to be stuck with a shell or patched up building that will reduce our value over the long run, or raise our maintenance to a level that is not sustainable...
Thanks for your ideas/feedback, much appreciated.

Hi,

We have 111 units with 11 rentals left (which we own) and sell when they become available. We also have almost 3/4 of a million in reserves. When we had an engineering study done, we realized that out reserve level is not enough and we are looking to add to it. A reserve fund can give a board a false sense of security. We are looking at a Capital Funds Replenishment Fee (like a transfer tax) of 2-3 % off of gross however that means a super-majority for us which may not be obtainable for you.

I agree that 'doing it right' with the repairs is the best way to go and will be cheaper in the long run. My suggestion is to use the current reserve funds since you have them and then either phase in additional maintenance increases (putting the excess in reserves) or a lower annual assessment over three years to replenish the fund. Conceivably, you will need more in the end than just the 'mortgage reserve' as new repair needs will become evident.

Also, the tax credits of which you speak may lag the actual expenditure so that you may have to pay 100% for the repairs before you see the cash flow from any tax credits. Also, if you are seeking J-51 credits, all violations must be cured before the city approves the credit.

In my opinion, when the mortgage comes up, I would suggest buying out the sponsor. This puts your destiny into you own hands.

Finally, I would like to see you move towards sustainable finances. An engineering study of needed replacements within the next 5 years (incase the city/insurance company list is not comprehensive) and then establishing a 5-10 financial plan off of that for funding would be a start (for example: 5-year plan cash needs times two and a ten year plan to pay for it).

You might want to read your PL and By-Laws to determine if you use cumulative voting. If so, you might need a supermajority to vote out the board members. If that's the case, it will be a very difficult to do, since they would need to get only 20.1% of the votes to remain on the board.

As for counting votes and proxy forms, you should have your co-op's accountant attend and act as one of the ballot counters (your attorney could be the other).

Thanks for the info. Shareholders are aware that the bylaws state that elections use cumalative voting. Hopefully several current board members will understand that majority of the shareholders would like to see a new board. It is interesting because the sponsor currently holds 20.1% of the shares in our coop. As per the PL and BL a meeting needs 50% of the shareholders present in person or via proxy and for the board members to be removed shareholders need 51% to agree. Hopefully the board members will be removed or they will resign. If nothing changes the board will see that sharholders want a change. It is quite unfortunate because if the board communicated and respected the shareholders this would never need to take place. When the board and property manager do not disclose information and engage in unprofessional behavior consistently then shareholders need to take action and be proactive.

First thing is to get rid of both of them! Get a mid size management company and lay down the guidelines you want them to follow. Then start interviewing Supertintendents.

Yeah, me.

Board President 3 years, during which I oversaw whole-roof replacement, DVR security system installation, fitness room creation and installation, storage (both cage and bike racks) installation, sewer system replacement; hired two Supers (first left only for much better opportunity); initiated facade repair and window replacement projects; initiated and completed other improvements too numerous to list now.

When I first came into office, the building had suffered several recent years of in-fighting, rumors, lawsuits, complaints, "shadow" boards, etc. I initiated and saw succeed a conscious plan to get building residents and staff feeling like the building was their home and their neighbors, friends. I come from a small town originally; I prefer openness, honesty, candor, and good manners, both in myself and others - and find that how people are treated is how they'll treat you.

My relationship with both supers and managing agent were, and are, excellent; I've worked with both for-profit and nonprofit boards, with excellent results. I would be happy to talk with you about your problems and share suggestions based on my observations, experience and problem-solving ability. If I can help, I will.

Write me offline.

Bee Dub,,,
The name of the best Mananger/Consulant is: The Board of Directors.

The Manangement and Super work for you, and you own the Business. Take the montly statements, review them, and work with other Board Mem to make a scheduel for the Staff.

On reviewing our Finacials we have saved $$$$. Dont allow the Mang to make decisions for the Board. Have every check, payment etc approved by the Board..
And, corrospond (even the Super) by Email. There is noting like transparacy and and Email trail to keep things on the up and up.

Good Luck...VP

Bee Dub, I may be able to help you. If you have been reading any of my Blog entries on Habitat, you will have a pretty good idea of my approach. I have been the president of a self-managed 400+ unit co-op with a $5 million budget for the past five years. We have been successful at least in part because of my communications with shareholders and management, as well as my ability to filter the truth and reach compromise. I have also experienced some of the same conflict as you describe and the situation is now much improved without taking the drastic steps of removing people from their jobs.

I write here anonymously; however if you are interested in talking, let me know how to reach you.

Best of luck.

Bee Dub: It's your mgr's job to manage daily operations, oversee the super's activity and make sure things get done. It's your super's job to take direction from your mgr and tell him what he needs or reasons why he can't do certain things (e.g., too much work, don't have the right materials, isn't experienced or needs a pro to do a specific job).

Before you hire a consultant to find where problems lie, try it yourselves. He'll need time to look at all areas of operations, and that could cost a lot of money.

If your mgr and super blame each other that little gets done, ask yourselves questions and do some investigating. A few suggestions:

- Are your mgr and super open and at ease when your Board talks to them, or do they just complain or seem to be evasive?

- How satisfied are you with your mgr's performance in areas that don't involve the super? For example - dealing with owners, overseeing condo expenditures, making sure important letters/notices are sent to owners or posted in a timely manner, how easy it is to reach him and how promptly he replies to calls or e-mails from board members?

- How satisfied are you with your super's performance in the work he does do? Is he qualified? Is his work shoddy? Does he reply promptly to owners' requests for service? Do owners find him cooperative and like him? Is there much time when things could be done but aren't? Do you know where he is during his working hours and what he's doing?

- You might consider a questionnaire to give owners with a "poor to excellent" check-off scale for rating all areas of management and staff performance. People all have their own issues and ideas of what's important, but probably no one can give you a better gauge of what is or isn't being done, or how well things are done, than the people who deal with your mgr and super on a regular basis.

- Have each of your board members write a list of specific areas that they feel aren't being attended to properly, or at all. Then compare notes and see where you all have the same issues or complaints.

I don't know any consultants you can hire to investigate this matter but, as I said, it will likely take a lot of time and money. An objective "outside" opinion can be a good thing, but it could also be way off base and wasteful in the end. I'd still suggest that you try to determine where the "fault" lies internally first through those closest to the situation - your board and your owners.

I feel for you -- there is no excuse for harassment or derogation. From the board, it's uncivil and immature. But from the managing agent, it's grossly unprofessional.

Are the harassing board members the two who stand to be removed? Might that end that part of the problem? Or are the others behaving like babies as well?

Unless the board members are actively doing and not just saying things, it might be possible to take the "sticks and stones" high road. As for the managing agent, I would send copies of any harassing or insulting e-mails to the board and to the person's boss at the management company, and ask whether -- issues with you aside -- this is appropriate behavior for a professional, and whether the company tolerates this type of thing. If you get an unprofessional response, I would post it here and elsewhere with the company name -- e-mails are not considered confidential correspondence, and what's true is true.

Thanks for the reply. Hopefully there is good turn out at the special meeting and the two board members will be removed. The harassing comments and insults that I recieved from the managing agent were from the owner and chief opperating officer. I will gladly post these comments from JAL Diversified Management Company based in Brooklyn. They manage buildings in throughout NY. Once again please do not use JAL Diversified. For example, Maintance due on June 1 but shareholders recieved bill May 28th. Make any sense, but when shareholders contact the board they are ignored and nothing is done.

In our 505 unit co-op, we deliver the statements under the door to every resident, save those who ask that it be mailed to another address, e.g.: snowbirds.

The statements are distributed on the last week day of the month and are due on the 1st of the next month with a grace period to the 10th.

Yes, due on the 1st, but 10 day period allowed for payment.

We have few, if any late payers, e.g.: beyond ten days.

I will never condone board members or managing agents that treat shareholders with disrespect. However it works both ways and I expect respect in return. Not knowing what the conflict is about or type types of comments that some board members and the managing agent have made, I can't help but feel that we are missing the other side of the story. Why does the rest of the board tolerate unprofessional behavior? I have on occasion been on the receiving end in conflicts with shareholders (it's part of the job) but I do my best to be an effective communicator so our disagreements have never reached the point that yours has reached.

The fact that you were able to get 25% of the shareholders to support such a special meeting tells me that there is certainly something wrong with their behavior, their ability to communicate to the shareholders, or both.

As to your maintenance bills, there is nothing wrong with you receiving the bills 3 days prior to the end of the month. Your bill should not come as a surprise - you know you will get it every month, you should know the amount, and every building I know has a grace period, usually 10 days.

This is a very interesting topic. Our coop board asked the shareholders if they wanted to allow for fines -- guess what they replied. But without fines there seems to be no teeth in the rules which, as you said, is needed when they are neglected over & over again. My guess is that the fines would be either added in the monthly maintenance bill (such as a late fee is), or a separate billing. They are allowed by law. Thank you for asking this question.

Fines are revenue and teeth for compliance. We imposed a fine for not having insurance coverage (and we were very careful to state that it was a fine and not insurance on their behalf). It brought in $3k last year at $250 each. Just make sure you have Prop. Lease coverage.

Can this really be done? Any issues with New York State Insurance Laws?

Hi Helen,

No issues that I have heard of: we state clearly that we are not buying insurance for them but that this is a fine for non-compliance of Co-op House Rules (and/or Proprietary Lease provisions). More importantly than the income is the compliance we do get from those who might need a potential fine as a reminder to renew their insurance.

If fines are written into House Rules, they should be adhered to. Our House Rules have fines for various issues, this is acceptable. No one wants to be hit in the pocket, this is a way to control issues and/or rules from being broken. Most of us are in multi-dwellings therefore what one does can affect all S/H's. There should be some control.

In response, there have been no additions, changes to House Rules and we were not made aware. Only notices sent out that there would be a fine for this and a fine for that. Nothing saying that the House Rules or Prop Leases were changed. Is this the same thing? Thanks.

Fines don't need to be amended to the property lease or included in the house rules.
Proper and timely notification of all tenants is enough.
But before a fine is issued, there has to be letters of warning that this or that is a violation and urging the tenant to correct the problem.

Fines are only effective if you apply to same rules to all. I know of a building that sent out memos informing/reminding shareholders that when taking your dog outside to use the service elevator and exit through the service entrance otherwise they would be fined. The biggest violators were the board members with their pets. To add insult to injury they asked the staff to report violators and remind them of the rules.
The policy as you can tell was a complete failure

Again, despite what you may hear on this board or elsewhere, it doesn't matter whether the House Rules were changed. The fine is unenforceable unless the Proprietary Lease was amended by a shareholder vote. Check out this article from Habitat:

http://www.habitatmag.com/publication_content/habitat_s_purchasing_primer_news_for_new_buyers/house_rules

"Every now and then, however, a cooperative board tries to sneak in a requirement [in the House Rules] that doesn't belong there. The most notorious is one concerning fines for each violation. ... The rule of thumb is that boards cannot impose financial obligations on shareholders in house rules. If they want to do so, the financial obligation must be in the lease."

In practice, boards impose fines without proper authority all the time and they are rarely challenged. Who's going to take a coop to court over a $50 fine?

Thank you very much. I feel so much better. Now I know what to do. You have been very helpful & I cannot thank you enough :)

Assuming that your House Rules may be changed by the board without a shareholder vote -- which is the typical case -- then any fines you add to the House Rules will be unenforceable. A fine is a material change to the Proprietary Lease, and must be approved by a shareholder vote, not merely a board vote. (Ask Stuart Saft if you don't believe me.)

Fines are enforceable, it is not a "material" change or amendment to the Proprietary Lease that would require S/H approval. Often, the only way of insuring adherence to reasonable Rules and Regulations, is a reasonable fine.

We voted in a fine for breach/violation of any house rules. This was added to the house rules as a new rule. Our attorney told us we had to do it this way. SHs were notified of it by letter with a revised/new house rules page on which it was incorporated.

If someone violates a rule, we advise him of it in writing and suggest he read the house rules if he hasn't lately. If he violates the same rule a 3rd time, we add the fine to his monthly billing statement.

Our fine is $200. We haven't had to charge it often but when we have, SHs paid it. If they didn't, what we'd do is leave it on their account and add the late fee (once) we charge for any unpaid account balance if it wasn't paid the month after it was charged. It would sit there as a lien and have to be paid eventually when the SH sells.

As I said, our SHs have paid the fine in all cases so far so it hasn't been an issue for us. Since our fine is rather steep, we've also had a lot fewer violations of rules.

Just have the co-op’s attorney send a letter to the effect:

“Based on (event) you are in breach of the fiduciary lease. This is not the first such occurrence. If there is another such incident within “nn” month we will take steps to terminate your proprietary lease and notify your mortgage holder.”

Or something similar.

These two companies are already related and have the same corporate parent, a Canadian company. Not sure this merger should be seen in the traditional sense of a merger. The parent is putting the two siblings in the same bedroom after they have had separate bedrooms.