UPDATE CO-OP PROPRIETARY LEASE

You should. First, because this is a legal document, not Downton Abbey, and second, says Richman, "We find that boards spend a lot of time in disputes. If things are spelled out clearly in the proprietary lease, boards can avoid arguments at the outset and not waste time and money in litigation."

Indeed, some proprietary leases need updating critically. Attorney Stuart Saft, a partner at Dewey & LeBoeuf, recalls how the Hotel des Artistes, a co-op on Manhattan's Upper West Side, was forced to refund $350,000 in sublet fees to former shareholders because the fee policy, approved by a majority of tenant-shareholders, was never incorporated into the lease.

Saft has also seen board members get blindsided when they belatedly discover that their bylaws' indemnification provision covers only damage awards and not legal fees, forcing board members to pay considerable sums out-of-pocket

That's the "why" of it. So what's the "how"?

Step one, says notes Phyllis H. Weisberg, an attorney with Kurzman Karelsen & Frank is managing the politics of it. "You have to educate the shareholders," she says, "and make them understand that it's for the good of the co-op as a whole and in everyone's best interest."

Proprie-territory

So, what areas do you have to update? Ones dealing with advances in technology and the law.

Technology. "Some leases are unclear in terms of the building's right to access the roof or someone's balcony to install or maintain Internet [and cable] connections or other things that were not common some years ago," Richman notes. This may even involve access by outside parties, such as phone-company personnel who install and maintain the cell-phone transceivers and other devices for which your co-op has leased location rights, or advertising agencies hanging a banner ad on the side of your building.

The Law. Co-op boards and their attorneys need to be aware not only of new legislative statutes but also case law created by the court decisions that clarify those statutes. "Thirty years ago, there may have been two or three co-op decisions every year," says Saft. "Now there are multiple decisions every week. You constantly have to think about updating your documents in order for them to remain current."

One major statutory change came in 1988, when New York State amended the Business Corporation Law to increase the indemnification available to board members. If your bylaws, in this case, rather than the proprietary lease, don't contain up-to-date language, that could spell trouble.

New Clear Proliferation

Aside from issues of damage and repair — which can extend to who's responsible for damage to roofs and terraces, damage caused by apartment alterations and repair, and damage when the board has to forcibly enter an apartment in an emergency because the shareholder didn't provide a key — other areas you should look at include:

• Fees, such as sublet and late fees. If the proprietary lease says the shareholder has to pay monthly maintenance "promptly," explain your intent. Are you allowed to charge fees? Can you charge interest on those fees? If so, how much does the law allow? What about the ability to set "user charges" for things like parking garages and gyms?

• Flip taxes. Unless there's a provision in the proprietary lease for a transfer fee, colloquially called a flip tax, you can't have one.

• Subletting and other uses of the apartment. Unless there's a provision in the proprietary lease for this, forget about it. Check the lease to see how much control you have regarding subletting, over who can live in the apartment besides the shareholder and family, and what kind of work or profession the board will allow. Without going into detail on the topic of home offices, prudent boards draw a distinction between occupations that impact habitability and security — such as a day-care center being run out of an apartment — and those that do not, such as a draftsman or a writer.

• Insurance. Does the lease require the shareholder to carry apartment insurance?

• House rules. What's the board's procedure to create them? What types of rules can and can't you create? Is there a provision for enforcement

• Alterations. Another big area. The main thing to know is whether there's a provision requiring that apartment alterations be approved by the board, what the specific steps are for approval, and the board's responsibility to provide a timely decision

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