WHY YOU NEED TO UPDATE YOUR CO-OP'S PROPRIETARY LEASE — TODAY!

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That last brings up an another important point to consider: Draconian rules and leases that absolve a board of any responsibility for behaving in a fair and timely manner may not pass legal muster and may depress the value of apartments, since no one wants to invest in a building where you have to jump through hoops to replace the kitchen stove.

Apropos of this, attorneys advise that a modern proprietary lease include a provision for arbitration/mediation, terms more or less used interchangeably (see "Mediating Basics," Habitat, December 2011). For quality-of-life issues especially, arbitration can be a quicker, easier, cheaper, and more confidential alternative to the judicial process.

If It Ain't Broke...

Some things in a proprietary don't necessarily need to be changed or added. To allow reverse mortgages, which have come into vogue over the last few years, "You don't need the proprietary lease amended," says Saft. "The board has the ability to approve reverse mortgages."

And surprisingly, the advent of same-sex marriage in New York State may not require any changes to most proprietary leases. "Up until last year when same-sex marriage was approved," says Saft, "when we did a proprietary-lease review we suggested the lease be revised to say 'spouse' and 'domestic partner' [rather than husband and wife]. But with the new law, that language change no longer has to be made." However, Richman does advocate making the language "more gender-neutral. We'll change 'wife' to 'spouse,' for instance."

Extension Service

Ironically, the most important change to a proprietary lease is also the easiest: extending it.

Your proprietary lease, like any lease, has an expiration date, although that usually doesn't come for 50 years or more. This is partly because the New York State Department of Financial Services requires that a proprietary lease have a term of at least 35 years before the department allows 30-year financing in the building.

Every co-op routinely gets supermajority approval to extend the lease term (otherwise shareholders wouldn't be able to get financing), but a supermajority is difficult to get when you're updating the proprietary lease. "Depending on what the lease provides, the [needed] super-majority could be two-thirds or three-fourths of the outstanding shares," says Weisberg. "I've seen it go up to 90 percent. And that's not the percentage of people voting but of all outstanding shares, so if a lot of people abstain, it's effectively a negative vote."

The politics of it have to be carefully managed, she cautions. "This may mean lots of informational meetings and coffee klatches with floor captains about why you're doing what you're doing and getting their input," says Weisberg. "Sometimes shareholders have very good suggestions you could incorporate into the provisions being submitted for a vote."

The hot-button items are repair policies, restoration after a casualty, flip taxes, and alteration agreements, as well as the "transfer requirements" governing selling, bequeathing, or otherwise passing along an apartment's shares requirements.

Opposition Is No Party

And be ready for opposition over things you'd never expect opposition to. "The problem is when people buy an apartment, they don't necessarily read the lease," says Weisberg. "Now they're suddenly reading the lease, and they'll complain about some other provisions that are not being changed."

One solution: "We typically give them a blackline lease," she says, meaning a lease where old provisions have black lines through them and a new or rewritten provision is attached. This makes for easy comparison so that shareholders can easily digest all the changes being proposed.

Finally, any vague phrasing needs clarification. Bruce Robertson knows firsthand how costly that can be. "Our building replaces flushometer valves and radiator valves at our expense," says Robertson, former board member of an 83-unit Riverside Drive co-op in Washington Heights' Audubon Park Historic District, who now serves on the co-op's finance committee. Years ago, his flushometer broke and one of his downstairs neighbors was flooded.

"I told our managing agent that the building is responsible for repairing the damage. He said, 'No, look at your proprietary lease.' I said, 'No, in 2005 there was a policy change' — and then it turned out there have been policy decisions made by the board that we never put into the proprietary lease."

Building documents seemed to bolster his claim, but then they found that the wording was vague. "We said the building would assume flushometer responsibility," says Robertson. "Did that just mean replacement, or [fixing] damages to the building?" In this case, he says, the building replaced the valve, but Robertson was responsible for his own insurance claim for the repairs.

And to this day, that co-op still hasn't updated its proprietary lease. Someone had better hop on a velocipede and get to its lawyer's office.

Adapted from Habitat March 2012. For the complete article and more, join our Archive >>