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Council of New York Cooperatives & Condominiums
CNYC
Conference Highlights

Published: Summer 2001

Every Autumn, the Council of New York Cooperatives & Condominiums holds its day-long information-packed Housing Conference at Hunter College, with dozens of workshop offering unparalleled opportunities for board members of cooperatives and condominiums to learn and to share information on virtually every aspect of operating their buildings. The 21st annual Housing Conference will take place on Sunday, November 11, 2001.

At CNYC's 20th annual Conference in November, 2000, fifteen new workshops were offered, along with three times that many classic sessions. Reviewed here are two new presentations. Dick Koral, founder of the Apartment House Institute chaired a lively panel discussion entitled How to Hire a Super, and Attorney Douglas Heller presented an informative seminar detailing the many situations and options that can arise regarding the transfer of apartments, primarily in cooperatives. Updated versions of both these seminars will be presented at the 21st annual Conference.


HOW TO HIRE A SUPER
Building superintendent Eugene Marabello, property manager Paul Herman and co-op board president Naomi Dickerson joined the Superintendent's Club's founder Dick Koral for a panel discussion entitled "How to Hire a Super." Their class was comprised largely of members of co-op or condo boards, but it was enhanced by the presence and participation of two superintendents and two property managers.

The panelists opened with brief statements of the difficulty of hiring supers. The balance of two hours was spent with a free-for-all discussion among all the participants. Both board members and managers expressed the problem of the lack of any standards of competencies available to them for comparison to the items on candidates' resumes. When Koral told the group that the Supers Club was striving to embark on a Certification program, the announcement was greeted with enthusiasm.

Pointing out that superintendents are probably in the last remaining profession that makes house calls, Mr. Marabello commented that most boards and managers do not recognize all that a super's work really entails. This, he said, hampers their ability to identify criteria on which to base their selections. He listed dozens of chores that he routinely performs in his building. His remarks were warmly seconded by the two supers among the participants.

Board president Dickerson emphasized how important her super was; that without his years of experience in running the building, the board would be lost when planning or reviewing its maintenance program. Manager Herman brought twenty years of experience in helping and advising owners in the recruitment of new supers. His role typically involves a search and presentation of three suitable candidates for a board to interview. He indicated that the search was difficult, and that he advises the boards that they must avoid questions as to family background or composition, age, etc., which are illegal to ask. However, drug tests and background checks help his clients to learn much of what they need to know to judge candidates.

The panel commented that smaller buildings (about 40 units or less) have the most difficult problem because, unless they are luxury housing, it is unlikely that they can afford a full-time super. They have to grapple with the reality that the super must work off premises most of the time, hopefully available to return for emergencies when called. Here, the lack of understanding of what a super does became most obvious. When a building looks to the super as primarily a janitor, it forgoes other important services such as energy conservation measures, so that fuel costs can be very high.

Other significant items emerged from the discussion. One was the importance of providing a decent apartment for the super and his family. The all-too-frequent offering of a one-bedroom to a super with two children was shown to be an obstacle to hiring other than a bachelor! Owners of small buildings were urged to acquire an apartment for the super close by, if one were not possible in the building.

The Super's Club will welcome your building super as a member and your monetary contributions to its efforts. For information call the Apartment House Institute at 718-260-5225 or visit the club's website at www.nysupersclub.org

CHALLENGES ON APARTMENT SALES AND TRANSFERS
The Board of a cooperative or a condominium faces both responsibilities and opportunities when owners propose the transfer of their condominium units or the proprietary lease and shares in their cooperative apartments. While cooperatives all have standards in place regarding the approval of apartment transfers, procedures surrounding the actual transfer can have unanticipated complexities. The Tax Reform Act of 1986 added to the complexity of transfers by significantly expanding the definition of shareholders qualified to own a cooperative. This law allows shares to be issued to trusts, corporations and similar legal entities. To avoid potential risk, boards should understand the implications of these various options and should be alert to the many unusual situations that can arise in the course of a transfer, warned Douglas Heller, partner in the law firm of Friedman, Krauss and Zlotolow. "We do not claim to have all the answers," he said, "but we will attempt to make some suggestions as to how to handle particular situations."

Although condominiums have relatively little control over sales and transfers, the right of first refusal sometimes gives a condo board the power to designate another purchaser. One possible complication, Mr. Heller explained, is if the seller refuses to complete the transaction. To protect against costly litigation, the board should examine its documents to determine if the legal fee will be passed on to the seller in such an instance.

CAREFUL RECORD-KEEPING
All too often, said Mr. Heller, a cooperative must deal with a seller who has lost his stock certificate and proprietary lease. In most instances, these documents have genuinely been misplaced and the shareholder's affidavit of loss could be sufficient documentation for issuance of new shares, particularly if the cooperative has carefully maintained records of all loans it has authorized and has retained copies of recognition agreements on all loans. However, Mr. Heller cited an incident in which a shareholder claimed to have lost the proprietary lease and stock certificate but in fact had pledged them to a bank for a loan. The cooperative had experienced changes of management and had no record of a mortgage on the unit; upon receiving an affidavit of loss from the shareholder the cooperative authorized the sale and issued shared to the new purchaser. When the lender subsequently asserted its lien, the cooperative was held responsible for the entire amount of the unpaid loan. The Court determined that since the cooperative had misplaced its copy of the recognition agreement, between the bank and the cooperative, the bank was the more innocent victim. To protect against such a situation, Mr. Heller suggests careful record keeping and a clear policy for lost documents. To further protect its interests, the cooperative can require that its transfer agent examine the lien and judgment search on every apartment subject to transfer. Boards can also consider requiring a bond from shareholders whose document s are lost.

Mr Heller also noted that who your transfer agent is may make a difference as to liability if a problem arises. Usually, if a managing agent is the transfer agent, the agent is protected by an indemnification provision, leaving the cooperative with the entire financial responsibility for a problem. Attorneys, if they are transfer agents, are usually not indemnified. Mr. Heller suggested that cooperatives rethink the transfer agent issue when they are negotiating their management contract.

CO-OWNERSHIP, DIVORCE AND DEATH
In instances where there is more than one owner, the most crucial issue is what becomes of the apartment shares when one of the shareholders dies. When a husband and wife are co-owners, ownership may automatically pass to the survivor, provided certain formalities have been complied with. The Board must also be familiar with the terms of their own proprietary lease, as transfers to a surviving spouse are often permitted without board consent, even if the spouse cannot afford the maintenance. Additionally, while board approval is usually required for transfers to other family members, the board must often provide "good reason" for withholding authorization to transfer ownership.


In cases of divorce, other complications may arise. For example, a court may order a cooperative to issue a new stock certificate and proprietary lease to one of the co-owners. However, Mr. Heller cautions that "the attorneys for the parties and the lender should be promptly advised that the cooperative is not about to issue new ownership documents unless it first gets the old ones back."


Another potential danger to cooperatives involving transfers on death is whether there are judgments or tax liens involving the transferor, especially in the case of federal and state income and estate tax liens. If there is a lien, Mr. Heller recommends that the IRS and New York State Tax Commission be represented at the closing and that both agencies provide the cooperative with written receipts for the amounts due.

SHAREHOLDER DEFAULTS AND THE U.C.C.
Mr. Heller previewed an amendment to the Uniform Commercial Code (UCC), which has been enacted since his presentation. It contains provisions designed to improve the accuracy of record-keeping on apartment loans and also clarifies the rights of a cooperative in cases of shareholder default. Mr. Heller cautions that although proprietary leases usually contain guidelines to be followed in the event of default, "courts have not been sympathetic to cooperatives which want to cancel shares or auction the cooperative interest." In any case, he says, ending a shareholder's ownership is nearly impossible until the cooperative secures eviction and the apartment is vacated.

"UNSOLD SHARES"
A proposed change in transfer procedure regards sponsors and holders of unsold shares. While most cooperatives usually do not oppose the sale of unsold shares, there is some support from the Attorney General's office to stop sales without board approval. Says Mr. Heller, "The idea is that if the holder of unsold shares loses that status, the shares it owns are no longer 'unsold shares,' and any further sale, sublet or alteration would have to be approved as if it were any other transaction." The often unclear concept of unsold shares which, noted Mr. Heller, is likely to become even more unclear due to recent turnover in the Attorney General's Office-- can result in litigation between the cooperative and the holder.

TRUSTS AND CORPORATE OWNERSHIP
Recently, trusts have become more popular, among the middle class as well as the wealthy. Trusts can create a number of new complexities for transfer situations in cooperatives. Accordingly, Mr. Heller recommends that when considering trusts, a cooperative should make sure that the effect of the trust is minimal, and that the type of trust is acceptable. Necessary documents include:

  1. An agreement that each occupant be approved by the board.
  2. A guaranty of maintenance and other obligations of the trust by the prior owner and trustee.
  3. An agreement that the proprietary lease be the controlling instrument in the event of a further transfer.
  4. A written legal opinion of an attorney to establish the legal existence of the trust.
  5. An affidavit that the existing stock and proprietary lease have never been lost.. As to which types of trusts are acceptable, boards tend to look most favorably on those that are least complicated and in which the grantor continues to reside in the apartment. "In any event," said Mr. Heller, "each trust must be understood and, ideally, the board will consider each proposed conveyance to a trust individually, just as it would consider a new shareholder."

Mr. Heller advised that the question of corporate ownership, like trusts, be handled by a separate agreement. The agreements are quite similar to those required when dealing with trusts, and include specifying who will occupy the apartment, a guaranty that the maintenance will be paid by someone with adequate finances, and a written legal opinion from an attorney of the corporation.

 
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