Reveal Co-op / Condo Minutes to Apt. Buyers? A Top Attorney Gives the Facts

As you probably know, before signing a contract to purchase a co-op or condo apartment, a well-counseled purchaser will undertake certain "due diligence" unnecessary for someone buying a single-family home. That is because the financial condition of the association itself, and the physical condition of the association's common areas, affects the value of the apartment. If funds will be needed to deal with extraordinary financial or physical problems, then the current level of the maintenance or common charges will probably not be insufficient, or the reserve fund may be substantially depleted. A potential purchaser must consider all this.

Sellers usually possess some of the documents that a co-op or condo buyer typically seeks. Associations generally distribute copies of their financial statements annually to apartment owners, who also frequently have a copy of the offering plan and amendments, which contain the original proprietary lease for a co-op, declaration for a condo, and bylaws and house rules for a co-op or condo. A seller can make these available to a purchaser, or arrange for the property manager to make copies available, usually for a small fee or a deposit ensuring their return.

Boards' legal obligation

to disclose minutes is debatable.

Many associations do not make it a practice of distributing board-meeting minutes to apartment owners. In fact, even if an apartment owner requests a review, associations frequently resist. Their legal obligation to disclose them (other than as part of a discovery request in a litigation) is debatable, for one thing. An existing apartment owner frequently seeks them in order to aid in a dispute with the association, or as a precursor to an election or recall challenge regarding board seats. Therefore, it might seem strange that your board is willing to allow a review by a potential purchaser — an outsider — especially with no contractual or legal obligation to do so.

The explanation is simple economics. Associations want to maximize their apartments' value. If they will not allow purchasers to review their minutes, purchasers' suspicions are piqued. This will either lower sales prices or kill deals altogether.

Consequently, boards bite the bullet and allow access, although usually under controlled circumstances at their property manager's office, with copying not allowed. To balance privacy concerns, disciplined boards keep their minutes sparse, with little if any reports of discussions, and only the text of actual resolutions voted upon and the voting results themselves.

Another Question: Can Boards Restrict Trusts?

A new co-op board-member writes: "The board is periodically asked to approve the transfer of a shareholder's stock and lease to a trust. The board usually grants those requests, but I believe it should do so only if it limits the occupancy of such trust-owned apartments to immediate family members of the creator of the trust, who is the prior owner. I've heard there is a law that allows roommates even in co-ops, but I don't think that should prevent the co-op from imposing restrictions on what the trust can do. Am I right?"

Typically, co-ops are not required to approve transfers of their stock and leases to trusts. When they do so, they usually impose a variety of conditions. Thus, it is tempting to conclude that, in exchange for granting permission, a co-op could limit the occupancy of trust-owned properties to immediate family members. The co-op could most readily do so in the occupancy agreement under which the trust grants to the grantor the right to continue in occupancy of the apartment after the transfer to the trust.

The questioner is correct that a well-trodden statute, known as the "roommate law" (RPL Section 235-f), governs "unlawful restrictions on occupancy" in leases for all New York apartments. It provides that, "It shall be unlawful for a landlord to restrict occupancy of residential premises by express terms or otherwise, to a tenant or to such tenant and immediate family." Also, that "a lease or rental agreement" with one tenant "shall be construed" to allow the tenant, his family, and one "additional" (unrelated) occupant, and the occupant's dependent children; and with two or more tenants possibly additional (unrelated) occupants, and their families.

These restrictions plainly apply to co-op proprietary leases, and probably also to leases for the rental of condo units, although, to my knowledge, not to the occupancy of a condo unit by the owner himself. So there is every reason to believe that these restrictions would apply to the occupancy agreements that co-ops typically require a trust to issue to the grantor in connection with a transfer to a trust.

Moreover, this is not diminished by the fact that a co-op is not required to allow transfers to trusts, and thus seemingly should be able to apply conditions to them. The roommate law provides: "Any provision of a lease or rental agreement purporting to waive a provision of this section is null and void."

Adapted from Habitat September 2010. For more, join our Archive >>