Our Members Write
Should a Minority of Renters
Overrule Co-op Shareholders?
Beverly O'Reilly, communications chairperson at the Jaxboro
co-op in Queens, has sent the following letter to alert CNYC
to problems faced in her cooperative as the rights of renters
have come in conflict with the needs of shareholders.
The Rent Stabilization law has had a devastating effect on New York City
cooperatives and condominiums, taking decision-making power out of the
hands of responsible shareholders and putting it into those of rental
tenants. At the Jaxboro, a 144-unit co-op with 43 rent stabilized tenants,
we have witnessed first-hand the crippling financial impact that rent
regulation can have on this type of housing.
The Rent Stabilization Law was enacted many years ago -- before the great
increase in the number of co-ops and condos -- to protect rental tenants
from unsubstantiated rent increases and service reductions by landlords.
In non-eviction buildings where a portion of residents are still living
in rent stabilized units, however, the law gives priority to rental tenants
over the decisions of the shareholders, who are in the majority.
As a consequence, boards of directors can be legally prevented from changing,
reducing or eliminating a building service that they consider no longer
needed or too costly to maintain. If rent stabilized tenants want the
service continued -- particularly since the cost is not their responsibility
-- their "rights" take priority over the business judgment of
Should the board decide to pursue the reduction of this service in the
interest of cutting costs and balancing the budget, it must then undergo
a lengthy filing and appeal process with the state Division of Housing
and Community Renewal (DHCR), Office of Rent Administration, where the
board may or may not be granted permission to eliminate or reduce the
If the board attempts to make the change without DHCR approval, the state
agency has the right to impose severe penalties on the owner of the rent
stabilized units (generally the former sponsor), resulting in a rollback
of rents to a prior position, as well as a rent freeze. This puts the
landlord in a difficult position, where he must demand that the co-op
reverse its decision and restore the altered services.
At our co-op, union labor costs were absorbing 28% of the budget. The
board attempted to reduce those costs by eliminating a portion of the
doorman service -- the midnight-to-8 AM shift, which cost the co-op more
than $54,000 a year including wages, benefit package, workmen's compensation,
payroll taxes, and other employee-related costs.
A careful survey had revealed that this shift, provided in the building
since long before the 1984 conversion, was underutilized, with practically
no rent stabilized tenants using it at all (most of them are older people).
The board also found that none of the 12 neighboring buildings had doormen,
daytime or nighttime. As a result, the board felt it could better use
those funds elsewhere.
Yet according to the Rent Stabilization Law, this service could not be
removed without DHCR approval and, most likely, without a rent reduction
for the rent stabilized tenants. In addition, the tenants were entitled
to challenge the request -- which they did, on the grounds that the absence
of the doorman during the midnight hours jeopardized their security. (The
doorman was never a security guard. He simply opened and closed the main
door, and during the quiet midnight hours he was usually found asleep
in the lobby.)
Based on the challenge, the DHCR denied the co-op's request. It suggested
the building install a security system, and stated that the landlord could
then refile for permission to substitute the system for the doorman service.
There was, of course, no guarantee that such a request would be granted,
but the board acted immediately and presented plans for installation of
a security system. If the plans survive another challenge by the tenants,
the DHCR may grant the request -- but still determine that a rent reduction
is required due to the loss of service.
In addition, the landlord of Jaxboro's rent stabilized units requires
a commensurate reimbursement from the co-op for any rent loss from this
action. That means that if the DHCR approves the service reduction, the
shareholders will have to pay for their rent stabilized neighbors' rent
cuts -- even though they won't have a midnight doorman, either!
In a building that is no longer under sponsor control, it seems patently
unfair for regulations pertaining to rent stabilized tenants in sponsor-owned
units to have priority over the decisions of shareholders. After all,
the shareholders have made significant investments in the building, they
shoulder the heavy responsibility of managing the corporation, and they
are personally affected by maintenance increases when costs run over budget.
We are not suggesting that controls over rents for rent stabilized units
be removed. We ask that rent stabilization regulations that interfere
with the co-op's management of its own business affairs be lifted. These
onerous regulations favor non-shareholders at the expense of the majority