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 Peter Moulinos, managing partner of Moulinos & Associates. Common charges feed the coffers of condominiums, and it's never a good day when certain owners push back on these charges or assessments.
And that can happen when a condominium has two classes of owners. Peter, many condominiums have residential and commercial owners. Can you explain why one type doesn't have to contribute to repairs or upkeep for the other?
Peter Moulinos: Of course. And it's nice to be on your podcast, Carol. As you indicated, there's two types of owners in two general types of owners in a condominium, a residential unit owner and a commercial unit owner. Each of the unit owners is assessed common charges based on their percentage of their common charge interests. However, there does come a time when a commercial unit owner is asked to pay a cost either by way of an assessment or through the allocation of common charges for a expense that is unrelated to the commercial unit.
For example, there could be a dedicated elevator that services solely the residential unit owners in the building, and the assessment may be made amongst all the unit owners to pay for repairs or upgrades to that elevator. A commercial unit owner may object to paying that saying it. It doesn't have anything to do with that elevator.
It has no use for it, and it should not be billed to him. That's an issue that comes up from time to time that we deal with as well, and that's where dispute can arise.
Carol Ott: So how does the residential board determine what the commercial unit owner is responsible for paying? The elevator. I suppose that's obvious, although if I was a residential board member, I might nevertheless ask the commercial unit owner to pay.
But there must be some things that are not quite so obvious. How does the residential board determine?
Peter Moulinos: The first thing that needs to be done is to take a look at what the rights are of all the unit owners, and that is reflected in the declaration and the bylaws of the condominium. Those are the governing documents.
So a board should look at those and determine what the rights are. Now some of these declarations and bylaws could have been written many years ago, and some of them, in fact, maybe most of them are silent as to how that there should be an allocation of costs. Some of the newer declarations in bylaws and newer condominiums address this and they'll say, for example, that a commercial unit owner shall not be responsible for any costs or assessments that solely relate to components of the condominium, which are strictly for the use of the residential unit owners. That's great when it exists, but unfortunately it doesn't exist from time to time and that creates an issue for boards to grapple with.
Carol Ott: And in terms of the grappling, if it does not say anything in your bylaws, and I'm gonna focus on a new, not the elevator, but New York City has a lot of new regulations and one of them is local law 97, which is New York's Climate Mobilization Act.
And your building is treated as a whole. If one's condo building exceeds the carbon emission caps that it's given by the city and the commercial unit owner is a factor in that. Can the residential board turn to the commercial unit owner and say, you have to participate in everything that our building's doing to lower our carbon emissions, or how does that work?
Peter Moulinos: Sure. Again, the starting basis is the condominium governing documents. If the governing documents of the condominium are silent as to that, the board can turn to the commercial unit owner and say, you must participate in all the costs in proportion to your percentage common ownership interest in the building, and the commercial unit owner would, of course be deemed to also be emitting certain pollutants or be subject to the requirements of Local Law 97. And they, therefore, they need to participate. So that's something that, should be done. And again, if the governing documents are silent as to any specific allocation, then the commercial unit owner should be compelled to participate and contribute towards the cost of the local law work.
Carol Ott: And let's say in the newer condominiums the governing documents are not silent. So would the commercial unit owner still have to participate in a building wide project like that?
Peter Moulinos: Sure. Again if they are affected or if that's a cost that they contribute to, then they should also be compelled to pay that. There's also a flip side to this, where a lot of times a commercial unit owner, will be incurring a cost for the building that's unrelated to the residential unit owners.
For example, if they could be undertaking certain activity in the commercial unit that elevates or increases the insurance that the building has to pay for itself in that situation, you may find that the building comes back and says to the commercial unit owner, there's been an increase in our insurance policy because of your activity that shouldn't be borne by the residential unit owners, and that should be borne by you.
Again, that is a dispute that could arise and that could also require an evaluation as to what's built into the condominium documents.
Carol Ott: I'm wondering in, in bylaws where it does say what the commercial unit owner is responsible for. Bylaws can be amended and can be changed. Can the residential board attempt to change these bylaws so that the commercial unit owner is more included in the financial needs of the building?
Peter Moulinos: Yes, the board itself may feel that the commercial unit owner has been a non participant or under participating in the costs if there are certain terms of the bylaws that prevent a commercial unit owner from for paying costs pertinent to the residential components of the building. However, in most bylaws, there's a clause that say that bylaws cannot be amended unless it's done with a two third percent or two third vote by the owners of the building.
So that means you have to call the meeting and thirds of the owners have to approve the change. Some bylaws we've seen also provide clauses that say that you can't change any bylaw if it affects the commercial unit owner without the consent of the commercial unit owner. And there lies the rub, big rub.
The commercial unit owner is going to have a veto, so to speak, of any changes to the bylaws that may disadvantage or create additional burdens or obligations on the commercial unit owner. So that's something else that we've seen as well, because what we also have to understand is when this declaration is drafted, it's drafted by the sponsor and most sponsors like to keep an investment in the building that they develop, and the easiest piece for them to keep is the commercial unit. So they're mindful of this and they build these clauses into the bylaws so no one could force them to do something down the line after they've lost control of the building.
Carol Ott: In your experience of disagreements between the commercial and residential unit owners.
Where do those, what often happens? Does it go to court? Are they able to negotiate it? Do both sides have to give a little? How does that work?
Peter Moulinos: It depends. Everyone has different degrees of a desire for risk or a desire to take on costs. Most of the time, there's a meeting of the minds and everyone acts in a neighborly manner and they reach an agreement. Unfortunately, that's not often the case, and you do have situations where people stand their ground and won't give in. And at that point what we've seen is certain boards will tell a commercial unit owner, you're obligated to pay this, and if you don't pay it, we're going to file a common charge lien against your unit.
And if you don't satisfy the common charge lien, we'll foreclose against your unit. And at that point, you're stuck in a litigation that's going to incur costs on both sides. And most of the time people find a resolution by that point in time.
Carol Ott: I would think so. It's the noose around the neck start to a negotiation.
Peter Moulinos: Correct. More or less. That's a good way to put it.
Carol Ott: Finally, what's your takeaway for condo boards as they navigate the landscape between what their residential owners need to pay and what the commercial owners need to pay, or the board would like them to pay?
Peter Moulinos: Again the first step is take a look at the bylaws and declaration and identify what everyone's obligations are.
If there are no carve out, so to speak, of the commercial unit owner's obligation to pay its proportionate share of common charges, then any costs should be assessed across the board in accordance with everyone's proportionate interest in the common elements. If there is a carve out, best thing to do is identify what those carve out, carve outs are and as costs come up, it's always good to have a professional opinion in writing from a technical expert who can identify whether or not that cost is applied or should be absorbed by the commercial unit owner. That will withstand any challenge by the commercial unit owner as an independent opinion. And it's good to have that in dealing with the commercial unit owner so they understand that the, the board has done its homework and is not assessing certain costs to a commercial unit owner randomly.
Carol Ott: Is that technical opinion often of an architecture engineer or?
Peter Moulinos: Correct. It could be an architect, it can be an engineer, the trade professional performing the work. Someone with the technical expertise to provide their opinion as to whether or not that cost affects or is a result of activities relating to the commercial unit.
Carol Ott: Okay. Thank you very much for joining us today. It was much appreciated.
Peter Moulinos: Oh, it was a pleasure, Carol.