TOP 10 SIGNS, P.2

6) Does the board control the co-op or condo’s reserve funds? The board should control the reserve funds in order to be aware when the funds are being drawn and to know if the co-op or condo is exceeding its budget. Unfortunately, there have also been instances where a board member has utilized the reserve funds for his or her own needs, so the release of the reserve funds should require the signature of more than one board member.

7) Does your co-op or condo owe interest or penalties for unpaid taxes, or is it required to pay late fees to vendors or contractors? Although we are living through an environment in which the city is raising real estate tax assessments to offset other lost revenues, if the co-op or condo is forced to pay late fees and interest, which are exorbitant, then it needs to re-examine the budget. Moreover, if vendors and contractors are not being paid on time, they may charge your building a premium in the future or their bills may be “falling through the cracks,” which is something else that needs to be examined.

8) Are the public portions of the building dirty? Does the building have mold? Are there mice or rats visiting apartments? These are all signs that the building is not being properly maintained or some of your residents’ apartments are filthy and are attracting vermin. In either event, it must be investigated. There are few things as dangerous to the well-being of your residents as one or more of the residents hoarding or collecting debris in their apartments or having multiple pets that are not being walked outside. The list of what can cause vermin in the building is long but must be treated aggressively by management. Unfortunately, this becomes a problem in buildings with aging residents, and the board should have a plan for dealing with it.

9) Are many of your owners violating the lease, bylaws, or house rules? This could be a sign that the residents know that the board is weak and not enforcing the rules or does not care or, worse, the board members themselves are violating the rules. Any answer is wrong because the board has an obligation to provide each resident with the quiet enjoyment of his or her apartment and the board is obligated to adhere to the rules the same as any resident. The board should regularly review the house rules and make certain that they are still relevant and, if they are not, change them.

10) Are some owners being treated differently than others? There is nothing that creates dissension in a building more than if the board, the managing agent, or the building staff are treating owners differently. Moreover, the Business Judgment Rule protects boards, provided that the board members have not discriminated, involved themselves in self-dealing or bad faith, or acted in a way that benefits their friends over the other owners. Furthermore, anytime a board member has a personal interest in the outcome of a discussion, that person should recuse himself or herself and leave the room during the discussion.

Stuart Saft is a partner at Dewey & LeBoeuf and chair of its Global Real Estate Department, has been selected into the American College of Real Estate Lawyers, Who's Who in America, Who's Who in American Law and Who's Who in the World, and is Chairman of the Board of the National Consumer Cooperative Bank.

For seven other major signs, visit the online Archive or subscribe and receive the July / August issue of Habitat.