This is a very interesting topic. Our coop board asked the shareholders if they wanted to allow for fines -- guess what they replied. But without fines there seems to be no teeth in the rules which, as you said, is needed when they are neglected over & over again. My guess is that the fines would be either added in the monthly maintenance bill (such as a late fee is), or a separate billing. They are allowed by law. Thank you for asking this question.

Fines are revenue and teeth for compliance. We imposed a fine for not having insurance coverage (and we were very careful to state that it was a fine and not insurance on their behalf). It brought in $3k last year at $250 each. Just make sure you have Prop. Lease coverage.

Can this really be done? Any issues with New York State Insurance Laws?

Hi Helen,

No issues that I have heard of: we state clearly that we are not buying insurance for them but that this is a fine for non-compliance of Co-op House Rules (and/or Proprietary Lease provisions). More importantly than the income is the compliance we do get from those who might need a potential fine as a reminder to renew their insurance.

If fines are written into House Rules, they should be adhered to. Our House Rules have fines for various issues, this is acceptable. No one wants to be hit in the pocket, this is a way to control issues and/or rules from being broken. Most of us are in multi-dwellings therefore what one does can affect all S/H's. There should be some control.

In response, there have been no additions, changes to House Rules and we were not made aware. Only notices sent out that there would be a fine for this and a fine for that. Nothing saying that the House Rules or Prop Leases were changed. Is this the same thing? Thanks.

Fines don't need to be amended to the property lease or included in the house rules.
Proper and timely notification of all tenants is enough.
But before a fine is issued, there has to be letters of warning that this or that is a violation and urging the tenant to correct the problem.

Fines are only effective if you apply to same rules to all. I know of a building that sent out memos informing/reminding shareholders that when taking your dog outside to use the service elevator and exit through the service entrance otherwise they would be fined. The biggest violators were the board members with their pets. To add insult to injury they asked the staff to report violators and remind them of the rules.
The policy as you can tell was a complete failure

Again, despite what you may hear on this board or elsewhere, it doesn't matter whether the House Rules were changed. The fine is unenforceable unless the Proprietary Lease was amended by a shareholder vote. Check out this article from Habitat:

http://www.habitatmag.com/publication_content/habitat_s_purchasing_primer_news_for_new_buyers/house_rules

"Every now and then, however, a cooperative board tries to sneak in a requirement [in the House Rules] that doesn't belong there. The most notorious is one concerning fines for each violation. ... The rule of thumb is that boards cannot impose financial obligations on shareholders in house rules. If they want to do so, the financial obligation must be in the lease."

In practice, boards impose fines without proper authority all the time and they are rarely challenged. Who's going to take a coop to court over a $50 fine?

Thank you very much. I feel so much better. Now I know what to do. You have been very helpful & I cannot thank you enough :)

Assuming that your House Rules may be changed by the board without a shareholder vote -- which is the typical case -- then any fines you add to the House Rules will be unenforceable. A fine is a material change to the Proprietary Lease, and must be approved by a shareholder vote, not merely a board vote. (Ask Stuart Saft if you don't believe me.)

Fines are enforceable, it is not a "material" change or amendment to the Proprietary Lease that would require S/H approval. Often, the only way of insuring adherence to reasonable Rules and Regulations, is a reasonable fine.

We voted in a fine for breach/violation of any house rules. This was added to the house rules as a new rule. Our attorney told us we had to do it this way. SHs were notified of it by letter with a revised/new house rules page on which it was incorporated.

If someone violates a rule, we advise him of it in writing and suggest he read the house rules if he hasn't lately. If he violates the same rule a 3rd time, we add the fine to his monthly billing statement.

Our fine is $200. We haven't had to charge it often but when we have, SHs paid it. If they didn't, what we'd do is leave it on their account and add the late fee (once) we charge for any unpaid account balance if it wasn't paid the month after it was charged. It would sit there as a lien and have to be paid eventually when the SH sells.

As I said, our SHs have paid the fine in all cases so far so it hasn't been an issue for us. Since our fine is rather steep, we've also had a lot fewer violations of rules.

Just have the co-op’s attorney send a letter to the effect:

“Based on (event) you are in breach of the fiduciary lease. This is not the first such occurrence. If there is another such incident within “nn” month we will take steps to terminate your proprietary lease and notify your mortgage holder.”

Or something similar.

These two companies are already related and have the same corporate parent, a Canadian company. Not sure this merger should be seen in the traditional sense of a merger. The parent is putting the two siblings in the same bedroom after they have had separate bedrooms.

We have allowed trusts. Typically as I recall they are for inheritance purposes and perhaps even generation skipping.

At the movement, I don't recall the details as I have only seen two applications in five years in a 490 unit co-op, with twenty-five units truning over each year.

One could already be a current owner and then elect to the shares in a "trust".

Trust are not allowed in our coop on the advice of our Lawyer. It harder to deal with trust or Corporations in the event of legal problems.

Most attorneys do not recommend the Coop to permit such transfers. When I asked someone why I was told that when an apt is held in a Trust it's more difficult, legally wise, to deal with the Trust as opposed to an indvidual(s) when confronted with any issues.

Also since the terms of the Trust can be modified at anytime, what you see in the inception of the Trust can be very different to what you find if any legal issues arise.

Checking with your attorney is a must on this issue.

I don't think your insurance company would like that idea?

As I understand it, NYC's Dept of Health requires all coops and condos with pools to have a lifeguard on duty whenever the pool is open. To check this, call the Dept of Health, at 212-676-1520.

You should not review any package until it is complete with all of the documentation that your application specifies, including all of the required schedules from income tax returns.
If the applicants are unable or unwilling to provide the requested information, the board should vote to reject the application.

The same holds true if documentation is provided but does not make sense. When we receive an application that does not fully explain where the funds are coming for the deposit, the balance due on closing, or the required income we will direct our property manager to ask the applicants for clarification. If the applicants are unable or unwilling to provide enough additional information to satisfy the board's questions, they should do their fiduciary duty and vote to reject the application.

As to your legal responsibilities, they lie with the corporation and its shareholders. The fact that an applicant may be unable to satisfy the questions of a co-op board does not mean that the applicant has done anything illegal. It is completely out of the scope of your responsibilities to involve the corporation in accusations which could result in costly legal actions against you and the corporation.

Bottom line - unless the board is comfortable with all of the information, reject the application and move on.

Ditto Board Prez's comments. The Board's fiduciary duty is to its shareholders/the corporation - not the US government, the IRS, or any other body.

Seek full financial disclosure to protect the co-op's interests; if it's not forthcoming, reject.

Board Prez - Yours was such a helpful response. Another factor we've encountered was with our management company, which wasted everyone's time and the coop's money, by sending us copies of an application package that was incomplete and, without realizing that, we interviewed the applicant. Of course it had to go back for more documentation and another interview. The application still did not have full supporting documents and for that and other reasons the person was turned down.

In this case it started with the property manger -- that person should know better than the volunteer board if an application is complete. If there's sloppy or inept work on the part of management, then the coop suffers. But that's another topic altogether.

Riverdale, I'm glad our experiences were helpful. If it does not already exist, have the managing agent or someone on the board who is most familiar with the process, create a check list for the application. Until there is a check mark beside each item and a sign off at the bottom, the board should not move forward with an interview.

Another idea...use a couple of board members as a financial review committee (or ask the property manager) to summarize the application on a single page with the most pertinent information including sales price, financing, income and asset requirements - only facts with no editorials. That review will make it easier for the entire board to review the application and will disclose if anything is missing.

The fact that you interviewed a second time suggest that you were discussing the financial portions of the application at the interview - a big no-no. The interview is a chance to meet the applicants face-to-face but should NEVER be used to discuss finances. If you have to reject an application for financial reasons and you have already met them, you may inadvertently open the corporation up for legal action, particularly if the applicant is a member of a protected class.

Good luck!

SidZ - If your coop doesn't know where funds came from for a buyer's deposit on a sale, also consider that it may have been given to the buyer by his/her parents as a "gift" or a "loan". Or it could be from an inheritance or a trust fund. This income could affect the buyer's tax filing. It wouldn't involve your coop but might answer your question as to where funds for a deposit on a sale came from. If so, ask your coop attorney if you can request proof of this from the buyer.

I would ask for written documentation of the source of the deposit. The reason is that it could be a covert loan from someone, with an equally covert, undisclosed agreement to pay the money back, which could affect your assessment of the adequacy of the applicant's income to meet the maintenance on the apt. I wouldn't take general verbal assurances as a substitute. If it's a loan, talk to your lawyer about how you can protect the coop against a future covert repayment agreement.

Every building had a different way of computing the shares per apartment. In our neighborhood, we are one of two virtually identical buildings, e.g.: number of apartments, floors, size of apartments, etc. Our total share count is near 90,000, while the nearby “twin” share count is closer to 60,000. Both buildings have 500 units. Floor plans are identical. Both converted to co-op on the same day.

In my co-op building, the cost for a three bedroom apartment with about 1,500 sq. ft. is $1,800 a month for ten months and $1,550 for the other two months. But be very careful in comparing this cost with any other building.

This cost is inclusive of the pro-rata cost of operating a central heating and a central air conditioning plant, as well as the regular maintenance, taxes, yearly assessment (spread over ten months) and indoor parking.

The only added cost is the electric bill for lights, window units (not PTAC, just fans as the central plant provides heating and cooling liquid to the pipe/fins in the unit), TV, PC and that’s it. All kitchen stoves are natural gas fed and that cost is in the monthly maintenance. And, the building supports a valet cleaners, security (24x7), doorman (24x7), porters and maintenance staff, tennis courts, basketball court, outdoor pools (3) and playground.

Of the $1,800 for the ten months in which the assessment is collected (tax isolation purposes), the assessment for the three bedroom unit totals about $2,500 a year. Based on all shares outstanding, the co-op now collects about $850,000 a year for capital improvements. The assessment was not always at this level as it has been raised about 50 cents a year over the life of the co-op.

Also, the co-op has no underlying mortgage, having retired the original mortgage without ever extending it, taking a 2nd mortgage or refinancing. And by comparison, the “twin” today has a $20,000,000 underlying mortgage having refinanced multiple times.

During the past 25 years, our co-op expended about $15,000,000 in capital improvements e.g.; refurbished upper and lower parking levels, upgraded recreation deck, rebuilt our outdoor pool, performed façade upgrades, replaced about 80% of all windows (remainder are to be completed in 2010), elevators (total overhaul and upgrade), central site cooler/evaporator systems replaced, automated controls installed for heat, domestic hot water and chiller systems, outside driveways and parking completely replaced, all curbs and sidewalks replaced, generator installed for emergency pump, lighting and some elevator operation, installed a new roof (32,000 sq. ft.) installed safety rails around the edge of the flat roof as building had none, refurbished all terraces (most units have a terrace).

Oh and our co-op is one of the lowest cost residences in our neighborhood and we are considered a luxury co-op.

So there are two reserves. Our capital reserves fluctuate and probably never go below $250,000 at year end. Our cash reserve is enough for two months maintenance. And we have a ten digit line of credit at very good banking terms as a safety net. The credit line is employed to pay for capital expenditures only in anticipation of assessment income. We always pay off the line of credit by year end.

It has been said in these forums that every building should collect 13 to 14 months of maintenance. I would agree and lean towards the two extra month value as all buildings age and capital improvements are de rigeuer.

The worst scenario is to take on an interest only mortgage (e.g.: balloon payment) to finance current capital expenditures, thus enjoying short term lower costs and saddling future residents with the costs incurred by past shareholders. In my view, this form of “deferred” financing is fiduciary impropriety or malfeasance.

Finally, our costs each year rise between 3.0% to 4.5%, almost in line with the historic inflation rate.

Hi, Sarah,
The other poster is correct: there's no easy formula. However, if you would like to see one shot at establishing one, go to
http://www.thepinehurst.org/residents.htm
and scroll down to "Manhattan Maintenance" to download a survey.

It looks at maintenance fees per square foot, and compares them by neighborhood. If you download the info, you'll see all the individual apartments listed that were part of the data. You may even see yours.

I agree that maintenance per square foot is a better measurement than per share however even then, is it very subjective. If you take a look at it from the perspective of financial sustainability, "Building A" might have low maintenance, interest only mortgage and plan to assess for capital repairs and replacements while "Building B" may have higher maintenance, a self amortizing mortgage and not plans to assess. Both get to the same point in the end but their approach is different (one could argue that the approach that "Building B" is using is could be less expensive in the end).

If you want, I could take a look at your financial statements to see if I could give you some perspective - free of course. I am a corporate accounting professional at a major NYC based insurer dealing with very large plans.

If the election is uncontested and the proxies are needed only for a quorum, so be it?

If the election is contested then an independent “proxy counter” should be employed. In our case, we use our outside legal counsel and a representative of our outside accounting firm, regardless, uncontested or contested.

This is far less expensive then hiring a proxy counting company.

We are self managed.

Our bylaws indicate that the corporate Secretary is to receive the proxies. But, if the Secretary is running for a position on the board, then it is inappropriate for the Secretary to “receive” the proxies. In this case, we allow our property manager to receive, hold and safeguard the ballots for the outside ballot counters.

Note that shareholders have the option of sending their proxy directly to outside counsel, if they feel more comfortable.

Thank you Ethel, I appreciate your input. You're right, the inspectors are needed only if the election is contested. I wonder, though, if the word "assign" in the bylaws can be meant to "hire" an Inspector. In the case of your coop, it seems the Inspectors are far enough out of the day-to-day business to be impartial. Our property manager is in the thick of it and has personal reactions to several shareholders -- probably not the appropriate person to be counting the votes/proxies. To hire the PM's assistant seems to be inconsistent with the impartiality that is required. But the board president decides and doesn't see the irony of it. It's a conundrum!

If the bylaws are calling for inspectors of election, it really should be by two non-involved Shareholders at the Annual meeting who can tally the votes and determine the outcome. Although it may not be illegal for the Management company to count the votes, allowing an independent group of Shareholders to count the votes will lead to no conflicts of interest.

The PM can always review the work once it is finished and before the results are offered to ensure the consistency of the voting and to make sure that all votes are counted, non-signed proxies are eliminated and that the actual outcome is correct.

It's always easier and more transparent if it is done the correct way.

I agree with you 100 percent, and thank you very much for your sound suggestions.