Carol Ott: Welcome to Legal Talk, a conversation about governance issues that New York's co-op and condo boards are tackling today. I'm Carol Ott with Habitat, the New York City magazine for co-op and condo board directors. My guest today is Marc Schneider, partner in the law firm Schneider Buchel. If you ever wanted to understand how a co-op or a condo conducts this business, take a read of its bylaws.
This document outlines how the board of directors must run the association and like everything else in life, occasionally needs a tune-up. Mark. Changing these bylaws is no easy matter. Can you explain how the process works?
Marc Schneider: Absolutely. So the process has some similarities and differences depending on whether or not we're dealing with a co-op, a condominium, or a homeowner's association.
And what I mean by that is, is for the most part, all of the documents provide that they typically need to be amended by a vote of the homeowners unit owners or shareholders, depending on what type of community association that we're dealing with. There are some exceptions to that, and the exception is that in certain co-op governing, co-op bylaws there contains a provision that allows the board to amend many of the provisions of the bylaws, but not all of them.
And they have to be read very carefully. When the board can amend it, it is typically done at a board meeting and there are requirements for what that board meeting notice has to have, et cetera. When it's done by the unit owners or shareholders or homeowners, it typically requires a special meeting of the homeowners or the unit owners or shareholders at which the language of the proposed amendments is put forth and a vote is taken. The bylaws will specify what percentage vote is required when it is one that requires the unit owners or shareholders to vote. And they typically range between 66 and two thirds and 80%. Obviously when they're 80%, those are more common in the condo arena, that is a tall order to accomplish and requires a lot of effort and a lot of work by the board who is seeking to amend those governing, amend the bylaw provisions.
Carol Ott: So in, in your experience, what are the common bylaw provisions that are getting changed or updated today?
Marc Schneider: I see a lot of bylaw amendments that relate to election practices and policies. For example, qualifications of directors. I've seen a number of my community associations amend the documents so that if someone, for example, is in arrears, that they no longer qualify to serve on a board and or run as a candidate. And that's just, board governance, right?
And community governance. Do you want somebody that is constantly in arrears or in arrears running the finances of your community association? So that's one of, one of the popular ones that I see. Another one that happens a lot and it happens when the need arises. And it's one that obviously very readily passes is in condominium settings.
There's, if a condominium wants to take out a loan commonly called a CIRA loan. They actually, pursuant to the Real Property Law, there has to be a power in the bylaws for the board to actually be able to take that loan. And if there's not, you have to amend the bylaws to get that power. So oftentimes when a board needs to fund a project, they come to us and we look at the governing documents and we say you're missing the power. And by the way, you have to comply with the law. And then what we do is when we seek the approval of the unit owners for the financing, we also simultaneously seek the approval to amend the bylaws, to contain that provision.
Carol Ott: And if a board decided it, it had bylaws that it wanted to update or amend. Does it make sense just in terms of board operations? You'd consult with your attorney, you say to your attorney, please review our document, our bylaw document. Give me all the things that we need to change and update, and then do we take that group of stuff and try and get buy-in ,from the community or?
What is the likelihood of success and how should one do it?
Marc Schneider: That's a great question, Carol. And what I always recommend is that when boards seek to amend their bylaws, that they don't seek to amend the entire document. And the reason why is because it gets too cumbersome and all you need is someone to not like one piece of it, and they're gonna just vote it down.
And if the document is, 50 pages long, people aren't gonna read it. So what I always tell boards is let's focus on what the real issues are. And typically the best time to amend your bylaws is when you have a great example for the community of the issue that you're trying to amend. For example, I have communities that oftentimes amend their governing documents to include the right to collect legal fees when you are going after someone for a default or when the person is suing the community.
They don't prevail. And the best time to do that is when you have a, a claim that's out there that's gonna cause the community to have to share in the legal fees for something that is a claim that is probably not a very valid claim. And we know that people tend to bring lawsuits when there's no implications or ramifications to them, and they don't have to pay legal fees.
So I say, look for those issues and present them. The other recommendation that I have is that if you're gonna tackle one of these projects, is before you actually notice the actual meeting, to amend the gov, the bylaws, you should hold an informational meeting with the community. Send out a letter with the draft of what you're seeking to do and invite the community's input.
This way, when you have that meeting, you're gonna, you're gonna get a couple of tweaks. You may get some good ideas, and you may also find out that the community is never gonna vote for something because it's not something they want. And then when you're done with that meeting, you're then gonna present your, your proposed amended documents and that you could at least say to the community, we had a meeting, we got the community's input, and the community is behind this. For example, one of the hot topics that I recommend strongly recommend discussing before you amend is another great amendment that is done is, oftentimes there'll be an amendment in condominiums or homeowners associations to limit leasing in some respect.
So a lot of buildings don't want it to be full of investors, so they'll amend the governing documents to provide that for hypothetically, an example that you have to live in the building for two years before you could rent your unit, so that now it knocks out investors and investors not gonna buy a unit and sit with it for two years and not be able to get any revenue.
And some boards want to go way beyond that and they want to turn their condos into almost the equivalent of a co-op for tenant's purposes. So that, submit an application. I want to see the lease, I want an interview, I want the board to have a right to approve or reject. And in some condominiums or homeowners association, it works because people don't want renting and they say that's great.
And especially if you had a recent incident where a tenant got in and they created all sorts of problems for neighbors. Now they say, wow, I understand it. But in other settings, you'll find that when you propose that whole laundry list of restrictions and limitations and qualifications, that some people will say yeah, I like that, but I don't like that and I'm never gonna vote for that.
So I always recommend holding that informational, meaning, getting the community's buy-in and then going forward. And to circle back to the main question, I don't recommend, just a, Hey, we're gonna make all these changes. I had a board one time that wanted to take out all the references to the sponsor 'cause there's no sponsor.
And I said, what are we doing? Why are we doing this? Okay, the document references sponsor, but it's irrelevant. There's no more sponsor. You're gonna spend all this money to amend this document for what purpose? And they said we have all these other changes we wanna make to it together. And I said, great.
Let's talk about what the real issues are. Let's talk, let's get a vote for the real issues and make those amendments. Now, I will say in some of the counties in New York State, it's very expensive to record these amendments. And in that regard, oftentimes if you're thinking about two or three or four of them, you might wanna do 'em together so you can record them as one document and not pay multiple recording fees.
But other than that.
Carol Ott: Would you just explain, because in New York City, I don't think the recording of a document happens.
Marc Schneider: It technically is supposed to. In some settings, there's actually an appellate case out there that requires believe it or not, bylaws to be recorded in in certain community associations.
So not in a co-op, in a co-op, you do not have to record bylaw amendments.
Carol Ott: But in Long Island, do you have to record bylaws with the--?
Marc Schneider: Not in a co, not in a co-op.
Carol Ott: With a condo?
Marc Schneider: And in a homeowners association, yes. Yes.
Carol Ott: Oh, you do.
Marc Schneider: And by the way, in, like for example, in Suffolk County, they charge you per, per lot. There's a cap of $5,000. I actually, it used to be $250 a home and if you had 200 homes, it could cost theoretically five, $50,000 to record your amendment. So I actually testified before the legislature and got them to put a cap on it for these types of settings. So it's still five grand though at the end of the day if you're in Suffolk County and you're recording it.
Carol Ott: But is that true in Nassau County?
Marc Schneider: Nassau County has different recording fees, but they do also have a recording fee.
Carol Ott: So I just wanna clarify something. If a community wanted to ban smoking or make rules on pets. Would they do this in the bylaws or would they do this in another kind of governing document?
Marc Schneider: In the co-op world, banning smoking or pets, that's in the proprietary lease. Pets are actually mostly addressed in most proprietary leases. Most of 'em say you can't have a pet, and then the board could decide they wanna change that. But in, in the setting of the smoking, in order to make your co-op no smoking,
that is something that is done by a proprietary lease amendment. And by the way, I know we're talking about bylaws, but proprietary leases, many of them have language in them that allows you to amend by written approval of the shareholders. So if you read carefully, you may not have to hold a special meeting.
You might be able to send a letter with a tear off on the bottom which is a lot easier process than a meeting that's noticed. Because the other thing that happens when you're seeking to amend these documents is sometimes if you're trying to get that 66 and two thirds or 80%, it's hard to get that in one meeting.
So if your call, have to do this at a special meeting, what we recommend is you call the meeting, get as many as you can, do it by what I call a proxy ballot. Collect those proxy ballots, and then you adjourn and continue those meetings so you can continue to get it. As long as you haven't been put in a spot where, let's say it's 66 and two thirds that's required that you didn't get over two thirds that said no already.
'Cause then obviously that's a fait accompli, you're not going anywhere. So in a homeowner's association or a condo, yeah. If you want to go no smoking, that's gonna require, an amendment to the governing documents, which is gonna require an amendment typically to your bylaws and or declaration.
Carol Ott: I see.
And a final question. Is there ever a conflict between a community's bylaws and the laws of the state?
Marc Schneider: Absolutely. And a lot of people don't realize this, which is why, I always say go to the specialist when you need the specialist. So make sure your attorneys are a community association attorneys as opposed to real estate attorneys or general practitioners, because those attorneys are gonna be well versed.
So for example, I've seen many condominiums bylaws that say that, homeowners association, I'm sorry, many homeowners associations bylaws or co-ops bylaws that say that when you fill a vacancy, that vacancy is filled for the remainder of the term. So for hypothetically purposes speaking, if you have a staggered board and let's say that I was on the board and I had, was just elected for a three year term, and in the middle of my three year, in middle of year one of my three year term, I resigned.
The bylaws will say that the board has the right to fill that vacancy and that person, vacancy is filled for the balance of my term, which would be two and a half years. The Not-for-Profit Corporation Law and the Business Corporation Law actually have a provision in it that says that's not the case.
It says that when a director is quote unquote elected or filled, is filling a vacancy that they must be put up for election at the next annual meeting. And then at that time, they get to fill for the remainder of the term. So boards may not even necessarily, realize that. The other thing is, for example, what I've seen a lot of times, it's not even just the law, it's two sets of governing documents that differ.
I've seen voting rights in a set of bylaws for a co-op that provide for straight voting. And you go to the certificate of incorporation and it has cumulative voting. So you have to be very careful. Your bylaws may not be everything. And if the law says something different than your bylaws, you have to comply with the law.
Carol Ott: And would the reason, I understand from a lawyer's perspective, but what you just said, but is the reason I need to care about what you just said, is if somebody files a legal action against our association and then discovers this, the fact that maybe the board member shouldn't be there? Is that the reason why ?
Marc Schneider: You always wanna be concerned about lawsuits, but I think the underlying reason is you want to comply with whatever the requirements are in the law. Look, we also know that there are a lot of laws that have been enacted, right? And we see them all the time. With regard to the approval process and how long you have to, how much time you can deal with an application in a co-op; that's not covered in your governing documents, right?
So you wanna make sure that you're complying and there are absolutely ramifications to those things. Sometimes you have fines, sometimes it's gonna enable somebody to defeat you in a court action, and there could be implications as a result of it. So yes, you definitely want to be careful. You wanna avoid legal challenges, right?
For example, if a board didn't comply with the requirement to take out a loan in a condominium or a homeowner's association, you now may open yourself up to the homeowner who doesn't want to pay the assessment related to the loan saying, You didn't do this right. You had no authority to take it out. And then, oh my God.
Now the bank says to you, wait you, you gave me an opinion letter, which by the way, I can't tell you how many times I've seen lawyers that represent condominiums, claim to represent condominiums. They give opinion letters that say that the board had the right to take a loan, and in reality, they didn't have a right to take a loan.
And some of the banks don't pay attention to what the New York State laws are because they also don't do a lot of it. So you, there are big troubles you can get yourself into if you don't comply with the laws.
Carol Ott: Alright, well on that note, thank you so much, Mark Schneider. It was very informative.
Marc Schneider: Always a pleasure. Thank you for having me. Have a great day.