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Hello,
I have read what I could find in past messages about boards creating new policy and grandfathering. I am ambivalent about grandfathering and I wonder if there is any widely accepted best practice or law that could offer guidance as we (my fellow board officers and I) consider the pros and cons.
Buying into a co-op is a tremendous investment. It is the largest investment many of us will ever make. It is a huge life decision. I can understand why grandfathering would make sense and would be the fairest course of action in certain cases.
Say a TV producer buys into a co-op. He pays careful attention to what the sublet policy is, because his work requires him to be in New York for long periods of time, and then in California for long periods of time. He loves the building and wants it to be his permanent base, but also anticipates possibly needing to sublet for several years at a stretch. The prop lease stipulates that shareholders must occupy their apartments for two years, after which time they may sublet. There is no time limit placed on subletting. Our hypothetical TV producer happily lives in his apartment for several years, after which time he is offered work on a show in California. He accepts the offer and starts making plans to sublet. Around this time, the board decides to impose a sublet limit of three years, after which time shareholders must either move back into their apartments or sell. Because the TV producer has no guarantee that his work obligations in California will end in under three years (the program may last four years, five years), he feels forced into a position where he has to sell his apartment.
In this case, because the investment is so enormous, the fairest thing to do, it seems to me, is to grandfather. Otherwise, it is almost as if one party has broken a contract. Agree? Disagree? If you disagree, can you tell me why?
Or, say a man who loves cats and has always owned them and plans always to own them buys into a co-op. He carefully scrutinizes the prop lease, making sure that the buildings he looks at allow pets before making such a large investment/life decision. He buys into a pet-friendly building. After he purchases, the board decides to implement a no-pets policy. In this case, too, not to grandfather seems unfair and similar to breach of contract. I have heard of cases where a SH may be allowed to keep the current pet, but after that pet dies must abide by the new no-pet policy. This, too, seems unfair to me.
Basically, I have problems with policies that change the conditions of original purchase and that essentially force people into a position where they have to sell. I really believe that people prefer to have as much autonomy and flexibility as possible vis-à-vis a very considerable investment.
This is not to say that I prefer a lax environment with no limits. But I do think that boards sometimes cross the line between looking after the shareholders’s collective investment and infringing on personal autonomy, personal decision-making. Boards need to manage, indeed, but micromanaging can really backfire imho.
On the other hand, I am aware of what seems to be the golden rule of business law: treat all shareholders the same. I just don’t know if that is possible or ethical in the case of policy changes. Otherwise things could change whimsically from year to year and people would never really know where they stand, and might find it quite difficult to make major life decisions.
I fully agree with this person on this bad clause being abuse by certain dictator who sat on coop for years claiming granfather clause as if they are entitled to privilege exclusively for them. for example at Sherwood Village B the coop Secretary established her own rules by unilaterally increases the amount of money ppaid when a shareholder is moving out but will exempt her when she decided to sell herself once I find out I told every shareholder who is concern to do the same that she did so we all can fall into the same category put up a sale disclosure even though we are not selling so we can get on the grandfather rule she has created to exploit our coop.Today because of all her bad rules for the past twenty years our coop is in the worst condition financially.She had a member of the Board who was selling her shares sitting on the Board interview of the new prospective tenant while discussing issues pertinent to the sale, because she uses these people as monkey to make them believe that they are part of her bad process while she is defrauding our coop.The same secretary has been on our coop Board for over twenty years and she refused to step down so the coop can grow without her stupidty,we the shareholders received our tax paper this year with the statement stating mortgage interest we had no mortgage on the Coop we have a loan that the secreatry and her cohort took and are having problems with the bank to provide our financials statement,for 06 -07 which was done this year by another accountant without full knowledge of our funds just so to satisffy the Bank Almagated which has provided the loan and we all think these people should be in jail for falsifying our record to the satisfaction of the bank.In 2010 we have just received the financials for the year 2006 2007 The coop board in my building together with the management of it make Bernie madoff look like a small ponzi schemer even though he was the biggest shark around.The politician need to help the shareholders and stop their nonsense of referring decent citizen who vote for them and work hard to pay their bills and their taxes to the New-York State Attorney general office who is much busy trying to go after Wall Street when these Board of directors in NY Coop are conducting themselve like a group of third world dictactor like The Chavez Of Venezuela. The Politician need to get involved and have these corrupt board and management company prosecuted to the full extent of the law People invest in a coop if it is good for Cooper Town and stuy it is good for all New-York housing sector of New-York City and Queens in particular have the most coop concentrated in the five boro.Even the Boro President is mute on our issue of corrupt Board members her office was notified the DA office was notified the AG office was notified habitat for all their writing about Coop were notified and what happen if you are a liar and a deceiver you get away practically free yet we all talk about honesty and it seems to me honesty is about self.
Grandfathering usually applies only to stuff that's already in place at the time the new policy is passed. If you decide to prohibit wet-over-dry renovations, pre-existing installations are grandfathered in. If you want to ban pets, you can't force people to get rid of pets they already own, but you can stop them from getting new ones. If subletting is no longer permitted, current subletters may remain until the end of their subleases, but no longer. An amorphous desire to sublet at some time in the future wouldn't be grandfathered, even to people who bought their apartments with sublet possibilities in mind.
It's a fundamental principle of co-ops that House Rules are subject to change at any time, and the Proprietary Lease may be amended by a supermajority vote of the shareholders. Everyone who buys into a co-op agrees to these terms as a condition of purchase. Policies change -- sometimes for the worse -- but as long as these policies are administered even-handedly, shareholders are bound to obey them.
(I can't help but think of people who moved to the United States around 1900, enthusiastically noting that income taxes were prohibited by the U.S. Constitution....)
It's a fundamental principle of co-ops that House Rules are subject to change at any time, and the Proprietary Lease may be amended by a supermajority vote of the shareholders. Everyone who buys into a co-op agrees to these terms as a condition of purchase. Policies change -- sometimes for the worse -- but as long as these policies are administered even-handedly, shareholders are bound to obey them.
Great way to explain it. Thank you.
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Your right a housing investment is major decision of time, money and effort. When one chooses to purchase shares in the cooperative, they agree and accept the proprietary lease, house laws, and by-laws that govern shareholders and the corporation. At the time of purchase, a shareholder accepts the theoretical and applicable differences between owning property in a house, condominium property and shares of a cooperative.
Under NY State Business Rules, Board of directors is granted wide ranging powers to govern the corporation – focusing on equitable treatment of shareholders. Policy and governing document updates are controversial.
This year we updated our sublet policy as well - to include a time limit and fee; it was a change that had not been made since the 90’s. We didn’t grandfather anyone; rather we allowed a phase out over two years until the new rules were implemented for those with current sublets, meaning they received 2 years + the time limit. I want to avoid hypotheticals, to stay focused.
We made the policy change consistent with our governing documents. Our bylaws Article I states – the primary purposes of the corporation is to provide residences for shareholders who shall be entitled solely by reason of their ownership of shares to proprietary leases … We wanted to meet this standard, while allowing some flexibility by allowing more time, but not grandfathering. We wanted to set a new policy that would be consistently followed, allow all shareholders the same opportunity and terms for subletting, and to minimize legal and financial issues for the corporation as a whole.
On Grandfathering – it’s a difficult proposition. Board’s change, managing agents change, requirements change. As a board member, a goal we strive for that treats shareholders equitably is consistency in polices. Think of all the policy’s in effect in a co-op, from the move in/move out, - Parking – laundry room – sublet and pets, etc… If these policies are updated and grandfathering occurs for each policy – managing the corporation (which the board was elected to do) becomes considerably more difficult and time consuming.
Those not happy about the decision, should reach out to the board/managing agent and see if they will meet with you to discuss your concerns (no guarantee), sometimes there are factors behind a policy change which are not communicated clearly if at all. (If you want specifics let me know)
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