Hi,

I had a similar situation with a building that I took over management of last year - the previous management company wasn't paying water or real estate taxes. I went to the Water Dept. with my hat in my hand and we were able to make out a payment plan to stop the penalties that were accruing and to budget it out on installments so that it would be less of a burden on the Board.

Finding a new company may indeed be the way to go. These are expected expenses that should be escrowed every month and no coop should be left without paying the real estates, insurance and water.

Hi Mark...thanks so much for responding. Is it reasonable to ask the management company to pay for the months that they failed to pay and to recognize? Or, is ultimately up to the board to catch those errors? I feel like they need to pay for this...but my husband says that it is on us, as as a board, because, as you said, we should have set the money aside...and perhaps been following more closely...but we never really get notices of when things come in and when they are paid. What do you think?

I like Mark’s answer. Assuming that the co-op had the funds available to pay the bills, I would say that the management company should pay whatever penalties and interest were ultimately paid to the water board, after negotiations.

It's reasonable to ask them to pay for the outstanding charges - but there may be an issue with you collecting. If they refuse, you could go to another company. If you go to another company, they'll have to be sued to recoup the losses.

If you go to another company and they refuse to pay, it might be worth taking it on the chin, learning the lesson and then moving on. You'll learn, as a Board, to check up on these things in the future and not let them get out of hand such as this. The budget should be made at the beginning of your fiscal year and from that budget the escrowed amounts will take shape. From hereon in, escrow out 1/12 of the major expenses so that you don't have this happen to you again.

If they refuse to pay and you move on, you'll have to do a cost-benefit analysis to see if it is worth it to pursue legal and the various costs that this will bring.

Hope that help and reach out to me if you want to speak more privately about the matter.

Mark

This was a good question and answer so I took this and made it into a video response for our YouTube channel.

http://ebmg.com/2014/06/question-answered-our-property-manager-screwed-up-our-water-payment-and-now-were-stuck-with-penalties-and-late-fees-what-can-we-do/

Thanks Mark and others...so, the management company did own up to the error...and agreed to pay for the late fees/interest...but no go on paying for the bill. They did however organize a payment plan with the DEP (unfortunately, we have to dip into our reserve a bit). The company has a comptroller (finally) and actually is doing what some of Mark suggests in the video (thanks for that, too). Lessons learned...though we are still in the market for a new management company. Mark how can I reach you?

Hey, you can email me at mblevine@ebmg.com or directly on the phone at 212-502-7048 x.201.

We had that situation a few years ago, management company did not pay our total withholding taxes for 6 months +, our union dues, our RE taxes, etc - This eventually cost us at least $300,000+; Our former accountant and certain board members said they knew about the withholding taxes but did nothing about it - the Union dues not being paid was a secret and in minutes said it was because of not paying for the guards which was not true. All I know is that the management company had all our money and by contract was obligated to pay our bills, especially withholding taxes,
RE and union dues. I don't know if putting the money into escrow helps, it all depends who has access to that account. When management does not pay the bills and the building has the money where did that money go, but our coop would not sue the management company. I definitely believe that they should have been sued because we not only had to pay what was owed but interest and penalties and with 32BJ that is over 100% - I believe you have to go through the managements insurance company - but they definitely should be sued. Unfortunately there is no agency that will help in this situation; getting NYS to license management companies would be a big plus; now they are only licensed as RE brokers

You need to take a good look at your finances. What started as some failed to pay bills in our Co-op ended as theft on a large scale by our managing agent.

Chetrit Sold $1.6M Condo Full of Mold and Mice, Resident Claimshttp://www.dnainfo.com/new-york/20140324/midtown/chetrit-sold-17m-condo-full-of-mold-mice-resident-claims-lawsuit
""They defrauded me," Schottenstein, who has the autoimmune disease lupus and cannot enter the apartment without wearing a surgical mask, told DNAinfo New York. "This was supposed to be all new plumbing, new electrics, new mechanics. And that was not the case."

According to Wikipedia, your governing documents determine what constitutes a quorum. It may be based on one vote per unit, on the number of shares, or some other measure represented at a meeting. See http://en.wikipedia.org/wiki/Quorum#Number_constituting_a_quorum.
You should also check this article from the Cooperator - http://cooperator.com/articles/1189/1/Business-Corporation-Law/Page1.html

The governing documents of your coop should clearly state how to amend the proprietary lease. You'll find that in the by laws.

A quorum is necessary to validate the election of a board. Usually 50% is enough. (that is 50% of the total shares of a coop)

To amend the by laws or the proprietary lease, a super majority is required. In other words, a commending majority of the residents of a building must agree on important changes. (Usually 66% or 75% of the total number of shares)

Thank you.
Great responses. Very helpful.

After additional research, I have come across this baffling conclusion.

The amendment made to the BCL in 1998 only applies to co-op that were formed February 22, 1998 and beyond.
If the BCL which governs all co-ops, deems it reasonable to change two-thirds majority to only a bare majority of all outstanding shares to amend, adopt or repeal by-laws, why is it not law for previously existing co-ops.
If the speed limit is changed today from 40 MPH to 60 MPH it stands to reason that it pertains to all drivers not the ones that received their driver’s license as of current date.

There seems to be a break in the system that needs repair. Any opinions’ on who to contact would be greatly appreciated.

Very important material here! Thanks for sharing. I agree that if the rules for changed for co ops formed after a certain date, that they should also apply to co ops formed earlier. The speed limit example makes sense. I think the NY Attorney General's office needs to take a much closer look at co ops where Sponsors refuse to sell. By neglecting this issue, there are many shareholders being harmed.

I contacted the AG and New York State dep.t of Corporations.
If they responds, I will share the information.

I asked our management company, NMC Management, whether it would be interested in a small building, and our manager, Nancy Candelario, said yes. Although her office is in the Bronx, she effectively manages our 48 unit building in Manhattan. Nancy worked at Bellmarc and Douglas Elliman before going out on her own. We have found her to be highly competent and responsive.

Contact info:
NMC Property Management
2323 Haviland Ave
Bronx, NY 10462
nancy@nmcmanagement.com
347-621-3336

I would look at the current available amperage for the units to see if it's reasonable first. With continual improvements in technology, most items are using less electricity today - energy star appliances all use less than the old ones. Flat panel TV's use 10 watts instead of 350 watts for the crt's. CFL (spiral fluorescent) bulbs use 80% less power. In my building, we have single phase 80 amp service available in each unit, which can provide 220 v if needed. No one in our 30 years has needed to upgrade that. If the service currently available is borderline, maybe you need to consider upgrading the building service, or at least getting a cost estimate for it. How many units are there, how much excess capacity do you have? You could consider charging some % of the estimated upgrade cost and put it into a reserve for upgrade when needed. What is the likelihood others will want to upgrade as well?

Thank you, JG. You provided some helpful information. I would still like to hear from anyone with experience of charging a fee.

I agree with JG that you need to look at the overall bldg needs and possibly need to bring in more service overall. If you are borderline it might make more sense to do a building-wide upgrade so you can control quality, construction and compliance.
Remember that it also means possibly increasing the size of (all) the meters which replacement not only costs a lot to do, but the billed usage cost of electricity seems to go up as well, in terms of volume of usage, not the rate charge itself. At it's most basic, installing new breaker boxes with enough spare room for unknown future needs, bringing in separate AC lines to each apartment, and each room using AC units, on dedicated lines to each room is important. All bathrooms and kitchens need to have GFI outlets and sockets, You might want to install USB sockets as well. You can't plug computers and digital equipment into lines that have motors and heating units on them such as hairdryers, vacuum cleaners etc. So there is a need for separate lines even if the usage doesn't top 80 AMP service, the spread and distribution might cause you need to distribute 100 amps or 120 amps throughout each apartment.
Are you billing usage as part of maintenance or is everyone individually metered and paying Con-Ed directly? Is your building a prewar building with the old asbestos wrapped wiring that is all friable by now, or newer bx cabled? Are the apartments properly grounded? Are they currently 2-wire or 3-wire runs?

There is no simple answer. An attorney could advise you about a statute of limitations, if one applies or not, and couild also discuss the 'thoughts' which follow.
How many units are involved, and what is the % of all units/shares?
I guess your actions would depend somewhat on how much $$ is involved.
If it can be shown that the management co. is at fault, a conversation needs to be held with the principals there to see if they will cure the problem themselves or not, or will they attempt to contact the units themselves and work something out?
Shareholders should know what they are responsible for paying, but many don't read mailings and rely on the maintenance bills to be accurate, making the assumption that they are calculated correctly.
You can also look to your insurance company as well as the management's insurance company if you can't get satisfaction from the management co directly.
A simple check of the financial statements each year should have revealed a shortfall on annual maintenance received/billed, based on # of shares outstanding and the rates in effect.

Hi JD and JG,

I have some additional thoughts. You definitely need a lawyer. My concern is that if you do not add the amounts to their bills and collect the undercharged amounts; the Board could unintentionally create a second class of stock. I mean that to say if you are a co-op, all maintenance charges are allocated by share. If you don’t collect, you have allocated them less than everyone else and could face accusations of discrimination by the shareholders that were charged correctly. (I would hate to think that you would have to refund everyone else just to make things equal if you don’t try to collect the undercharged owners). If you are ultimately having trouble collecting, one strategy is to charge the bills and collect the funds upon the transfer of the unit with the appropriate monthly late fees &/or interest.

Additionally, even if a Board hires a management company to provide services like billing and accounting, the Board is still responsible for the results (or an accounting firm and etc.). The Board must provide oversight. This does not preclude legal action if management does something wrong and the corporation suffers harm. However, Board oversight can often prevent errors in the first place.

Sincerely,

Steve

I remember a few years ago that the Habitat Board had many postings on this problem and the consensus was not to do anything, except of course adjust the maintenance up or down. This made perfect sense to me because in order for the coop to be left revenue neutral you would have to charge the under payers to be able to pay the over payers which could be a major burden for some as the discrepancy could go back many years. I do not understand just charging the under payers, aren't there overpayers in the coop? However, I became aware of a situation that completely baffles me. A few years ago it seems the accountant for a coop found the same problem, but stated that only the Overpayers had to be reimbursed, nothing about the underpayers ; the lawyer for the coop agreed on this. Since the coop did not have the funds, the board passed a 13% assessment in order to repay the overpayers based on the accountant's schedule. This seemed ridiculous to me as the underpayers are not paying as much as they would if they were charged; but the overpayers were being charged to pay back themselves increasing their burden; however the underpayers were not paid back. Then the next year it was again decided that the overpayers must be reimbursed and in order to do so, the board passed a 14% increase and assessment; again the overpayers were not reimbursed, but all the shareholders had paid the assessments, what happened to the funds was not disclosed. At this point the accountant is still including the original liability on the financials, as a payable to shareholders ,with a note attached, I can't understand this as a lot of the parties on both sides have moved so the liability at least should be adjusted or removed Neither the accountant nor the lawyer has commented on the fact that the overpayers have not been repaid, even with the 2 assessments. Could anyone explain this .

My question on this is the Super or Maintenance Man a contractor with either a license and/or Certificates of Insurance for their companies? If they are hired, just like any other contractor in the building on their off time and something should go wrong or someone should get hurt, etc. it could put the building in a bad position. All contractors who are paid to do work in an apartment should carry insurance and name the building and the agent as additional insureds / certificate holders.