CO-OP/CONDO BUYERS

My mother wants to visit us in our new apartment but she's in a wheelchair and there are some steps up to the front door. How hard would it be for the building to install a ramp, even a temporary one?

This is a big, big deal. Whether it is a permanent ramp or a temporary one, they must comply with certain specifications.

Any purchase of a temporary or "de-mountable" ramp must comply with the American National Standards Institute code 117.1-2009 for requirements on dimensions, slope, and clearances. A structural engineer must approve the ramp's structural adequacy or come with fabricator shop drawings bearing a New York State-licensed engineer seal. It must be noncombustible (recommended for compliance with fire codes for the means of egress and the [handicapped] accessible route). Whether it is temporary or permanent, it must adhere to maximum encroachment onto existing public way per the rules. Filing of the documents and acceptance by the Department of Buildings is recommended to memorialize the installation and use of public way. The insurance company should be notified to include the ramp in the protection offered by the building's liability policy.

The hiring of the professionals and the purchase of the ramp will cost thousands of dollars depending on the configuration of the building. There are buildings that, because of their physical structure, cannot accommodate a ramp. If it is possible to add a ramp to the building and the building agrees to go forward with either a permanent or temporary one, the process is lengthy and you should not plan on your mother visiting for some time.

Gerard J. Picaso is president of the Gerard J. Picaso Division at Halstead Management.

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Our lawyer is reviewing the board minutes of the co-op we want to purchase. What's important?

The state's Business Corporation Law requires co-op corporations to maintain minutes of all board meetings. Reviewing the minutes could also reveal issues involving the heating system, plumbing, roof, or façade of the building. A review may reveal if the board is using assessments to offset proper budgeting. The minutes may state that the board is contemplating a major project that may result in an assessment or substantial increase in maintenance charges.

Questions may arise: Why are so many assessments needed? Is the board overspending? What work has been completed and what work is still outstanding?

By reading the minutes of the board meetings, you may find information leading to any physical or financial issue in the building.

Another topic to be concerned about in the minutes is arrears. Why does this building have a large number of people in arrears on the monthly maintenance? What is the board doing to address that issue? Is the attorney involved? How proactive is the board in its actions to obtain payments? The building collects the monthly maintenance and operates from those collections. If a large number of shareholders fail to pay on time, the building may be unable to pay its bills, which can lead to many other issues.

Brian Scally is executive director of management at Garthchester Realty.

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As non-owners, renters don't have the same stake in a building as do shareholders or unit-owners. Never mind that assessments and maintenance increases don't affect them. Needless to say, for these and other reasons, renters don't sit on boards. But what happens when they feel like they feel mistreated and want to have a voice and representation? Some renters have lived in their co-op or condo apartments for years but feel like they are treated differently from owners by building staff. That's the case for renters in a building on Manhattan's Upper West Side. One of them tells Ronda Kaysen in this week's Ask Real Estate column in The New York Times that "the superintendent tends to treat [renters] as second-class citizens. Having a voice on the board might help." Stop the press, a renter on a board? "Good luck finding condo or co-op owners willing to vote a non-owner onto the board — assuming they even can," says Kaysen. "The bylaws of most buildings prohibit non-owners from sitting on the board. But even if your building were to permit the practice, owners (who are the only voting members) would have little incentive to elect a rental tenant. From an owner's perspective, a renter would not feel the pain of a special assessment or maintenance increase. So it would not make sense for a rental tenant to vote on such matters." So what recourse, if any, do renters in this type of situation have? Kaysen suggests forming "a tenants' association to demand a change from the condo, as there are rules that guarantee services and protect against harassment. But if tenants want a voice in day-to-day operations, they could suggest that a tenant be offered a seat on a house committee that reports to the board. Such committees frequently offer seats to residents who are not board members. They do not delve into the finances of the building but can influence quality-of-life issues." The more you know! 

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I work in sales and my broker is suggesting that I offer to put a year's worth of maintenance in escrow to get board approval. Why?

A co-op's board of directors has a fiduciary responsibility to ensure that a potential buyer is solvent and able to pay maintenance, any assessments, and all just debts. The board will review a potential buyer's financials, such as income tax returns, bank and investment account statements, a statement of assets and liabilities, and an employer compensation verification letter.

When a potential buyer's salary is commission-based, the board can be concerned that the buyer may not be able to pay maintenance and any assessments because the buyer doesn't receive a regular paycheck. To alleviate this concern, brokers may recommend that the buyer offer to put a year's worth of maintenance in escrow. The escrow can be drawn down if the shareholder defaults on paying his/her maintenance and any assessments.

An escrow agreement is drawn up if the board approves the purchase on the condition of the buyer submitting escrow. I would recommend that potential buyers with commission-based salaries offer to put maintenance in escrow.

Cynthia Graffeo is director of client relations at Argo Management.

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It's been a while since we last heard about Hidrock Realty's plans to convert the Pavilion Theater in Park Slope into 24 condos, a retail space, a 16-car parking garage and a "high-quality" cinema. Well, the first renderings are out and locals are giving the developer a good old-fashioned New York thumbs down. According to DNAinfo, "locals slammed the proposed design for a new five-story condo building next to the Pavilion Theater at a meeting Thursday [last week], with some comparing the new structure to a 'penitentiary in Sunset Park.'" Ouch. Although Community Board 6's Landmarks and Land Use Committee gave Hidrock Realty's plans the green light, it did so on the condition that architects tone down the design. The committee wants to see a less bright brick color and for the five-story building to be set back so it looks less bulky. "The base of new building should be more reflective of the residential character of Bartel-Pritchard Square," said Community Board 6 member Jerry Armer to DNAinfo. Although the developer's architects and preservation consultants insist "that they had tried to design the new condo building to echo Park Slope's famed late 19th century architecture," it looks like Hidrock is going back to the drawing board. "A spokesman for Hidrock said the developer is 'optimistic' that the design can be tweaked in response to locals' concerns," DNAinfo reported. Meanwhile, the "Landmarks Preservation Commission will review Hidrock's plans Aug. 4 and the developer will also need a zoning variance from the Board of Standards and Appeals to move the project forward."

Rendering: Hidrock Realty

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The building I'm interested in hasn't had a maintenance increase in ten years, but they have special assessments twice a year. What's up with that?

In a highly competitive real estate market, many boards are driven to contain maintenance charges. A stable maintenance history is attractive to potential buyers and often a key differentiator. A pattern of no maintenance increases raises a red flag of potentially poor fiscal planning where special assessments are disguised as a primary income source to cover operating shortfalls. In recent years, operating shortfalls were not uncommon because of energy market volatility, a spike in real estate taxes and water charges, and increased labor costs — components that can encompass up to 85 percent of a building's operational expenses. With proper planning and guidance from its managing agent, however, a board should balance operating expenditures with maintenance revenue.

Perform your due diligence before signing a contract to determine the underlying reasons for this pattern of assessments. Are special assessments used to cover operations or capital expenditures? What capital improvements have been completed in the past decade, and which are planned for or needed in the next five to ten years? How much money is in reserve and how does that compare to the amount of anticipated work? When does the co-op's underlying mortgage mature and is there an opportunity to refinance in the current low-interest environment?

Your research should help you determine whether the co-op or condo has a sound financial planning process in place. If not, you'll need to understand those dynamics and be willing to live with it or reconsider your investment.

Dan Wurtzel is president of FirstService Residential.

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How come a co-op doesn't increase maintenance fees each year? Costs go up, right?

The board proudly announces to the community, "There will not be a maintenance increase for the coming year!" The members add, "There has not been an increase for several years." Shareholders and owners might ask, "Is this a good thing or a bad thing?"

Shareholders and owners should question why the maintenance has not increased. Did operating expenses decrease? Is there money going into a reserve fund? What capital expenditures are anticipated? Is the budget balanced by drawing down savings?

A fact about property management that never changes is that everything always changes. Buildings start deteriorating from the moment they are constructed. Therefore, given an aging infrastructure and increased operating expenses, how can the maintenance realistically remain the same? No one wants a maintenance increase. If one is required because of an operating deficit, it will not go away the following year.

Imagine what would happen if deficits were allowed to grow over several years as inflation increases two to three percent per year? Meeting the shortfall by drawing down on savings will eventually require a large maintenance increase to balance the budget and to reestablish a reserve fund. Are boards accountable for their financial decisions? The answer is yes, but shareholders and owners also share responsibility since they receive their accountant's annual report.

It is essential that everyone review the accountant's report carefully. In the short run, shareholders and owners may celebrate maintenance remaining the same; over time it is unsustainable.

Alvin Wasserman is director of asset management at Fairfield Properties.

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A lender may decide against granting a loan to someone who is seeking to purchase into a building if it is involved in a lawsuit that may not be covered by insurance. In such an event, the lender may consider the lawsuit detrimental to the financial well-being of the complex. It is important to know what the lawsuit is about and the potential financial outcome. If the lender is concerned that a judgment issued against the property would lead to an assessment being passed to offset financial loss, the complex could issue a letter to the lender indemnifying it from liability. However, this would not alleviate the purchaser’s requirements to pay his/her portion of any such assessment.

If the lender is concerned about a potential lack of funds to cover any such judgment, the board can take preventive measures to ensure that a sufficient amount of money will be held in its reserve account. For example, the board could determine that it should maintain an amount equal to three months of maintenance or common charges.

Additionally, the purchaser can always look to lenders that have issued loans to other owners in the complex. By doing so, the purchaser would be working with a lender that has had previous experience with the complex, understands the financial history, and would better be able to assess the risks of lending.

Mark Levine is vice president of Excel Bradshaw Management Group.

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The financial impact of a lawsuit needs to be evaluated carefully by the board with its attorney and managing agent. It is better if a settlement can be achieved without suing. Drawn-out lawsuits can drain a building's budget, causing financial hardship, which could outweigh the benefits of any positive outcome. So choosing your battles wisely is extremely important.

That said, it is essential that the board, with the advice of its attorney and managing agent, enforce the rules and regulations. They should not allow adverse precedents to be set. Unresolved lawsuits can deter potential purchasers and lenders. Ongoing lawsuits can also pit neighbor against neighbor causing an uncomfortable environment.

Lawsuits against contractors can ultimately lead to positive results and, if provided in the contract, the recovery of legal fees. Again, the board should weigh the risk versus reward factor carefully and settle these disputes as quickly as possible. The success of this type of action is often dependent on having a good contract with your lawyer. Establishing a solid contract will save legal fees if work does not go according to plan and legal intervention is needed later.

Some lawsuits against a building cannot be prevented but can be covered by insurance: trip and fall (liability coverage), property damage (property coverage), discrimination (directors' and officers' coverage), and flood (flood coverage) where applicable. It is important that insurance coverage is maintained so that the potential financial impact is negligible.

Don Einsidler is president of Einsidler Management.

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There are usually two reasons for an ongoing assessment. The first is to raise funds for capital projects or capital reserves. It is not unusual for a building to face more than one capital project in short order, or year after year after year. For instance, funds may be raised or otherwise available for a needed roof replacement but then the board learns that the heating plant will not make it through another winter, and, hey, the elevator controller is problematic, and replacement parts are no longer available.

Then, too, there are those buildings whose construction always means that each Local Law 11 cycle triggers yet another massive project. So the board must either borrow the money or assess over a protracted period of time to cover scheduled, anticipated, and unexpected capital projects. These assessments should be tracked by unit-owners/shareholders as they add to the cost basis of their individual apartments.

Then there are the boards that believe that their common charges/maintenance payments are higher than any similar building in the neighborhood and that this devalues the marketability of their apartments. To keep common charges/maintenance payments in check, some boards will keep running assessments on the books to subsidize operating costs rather than raise common charges/maintenance payments. The accountants call this "smoke and mirrors" and it is a ploy that is clearly evident to anyone reviewing a building's annual financial statements. This type of assessment does not add to the residents' cost basis.

Lori Buchbinder is a principal at Buchbinder & Warren.

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