An Alteration Agreement Is Only As Good as Its Teeth

A properly drafted alteration agreement will require that any contractor hired by a shareholder or unit-owner must be insured. The board can also require the resident to carry homeowner’s insurance for the duration of the project and to put up a security deposit that will not be returned until all sign-offs for completed work have been obtained from the building’s reviewing architect, the Department of Buildings, and any other city agencies. But these basic requirements are  not enough protection for boards or for residents of a co-op or condo. 

Every effective alteration agreement also gives the board the right to have its property manager or attorney examine the contractor’s actual insurance policy rather than just accept a certificate showing the contractor is insured, says Manhattan co-op, condo and construction attorney C. Jaye Berger. The property manager also needs to make sure the contractor has signed the contract for the alterations. “If the contractor for some reason doesn’t sign,” she says, “that might perhaps make a loophole for claiming maybe these people aren’t additional insureds.” 

It’s all about having teeth in the alteration agreement. Consider the 780-unit Queens co-op where shareholders kept complaining to the board about banging noises in the middle of the night coming from a particular apartment. When building staff gained access to the apartment, they discovered that the shareholder had undertaken a gut renovation without board approval. “The first thing the shareholder had to do was submit an alteration agreement, then city permits and licenses and insurance, to make the job legal,” recalls the board’s attorney, Geoffrey Mazel, a partner at Hankin & Mazel. Then came the teeth: the alteration agreement specified monetary penalties that would be assessed for each day the project ran beyond the agreed-upon completion date. 

After the allotted time has elapsed, the board can require a meeting of the shareholder’s consultants, the contractor, the shareholder’s architect, the building’s architect, the managing agent, and sometimes the shareholder. The purpose of such a meeting, says Paul Herman, president of the real estate firm Brown Harris Stevens, is to reach “a firm understanding about expectations [for completion].” 

In the Queens case, the shareholder was ordered to submit a list of licensed contractors he was using, as well as proof of contractors’ insurance policies and required city permits. A legal action by the board proceeded in phases, with multiple court check-in dates, by which time particular parts of the renovation project had to have been completed. The work finally cost the shareholder tens of thousands of dollars more, including fines and fees imposed by the board, Mazel says. It took an additional six months to finish because the shareholder didn’t have the money to pay his contractors. 

“He was a strange guy who didn’t care about the rules,” Mazel says. Which underscores the need for a comprehensive alteration agreement, free of loopholes and loaded with teeth for dealing with people who don’t care about the rules.