Publication Date: Winter 1999
Every autumn, the Council of New
York Cooperatives & Condominiums holds its day-long, information-packed
Cooperative Housing Conference, where more than 60 workshops
and seminars present unequaled opportunities for board members
and potential board members of cooperatives and condominiums
to learn and to share information on every aspect of operating
their buildings. This unparalleled learning experience provides
guidance and inspiration to New York cooperators and condo
CNYC held its 11th Annual Cooperative
Housing Conference on Sunday, November 15, 1998. With more
than 600 attendees and 100 speakers leading 60 interesting
and informative workshops, the Conference met expectations
as the premier educational event for shareholders and unit
owners in New York's housing cooperatives and condominiums.
In one of the workshops, attorneys
Doug Heller and Walter Goldsmith of Friedman, Krauss &
Zlotolow offered participants a detailed blueprint for judging
their performance as board members. Here are the highlights
of their presentation.
STANDARDS FOR BOARD PERFORMANCE
Cooperative housing corporations and condominium associations in New
York State are created pursuant to State law and are required to provide
owners with documents that describe their rights and responsibilities.
The Boards of Directors and Boards of Managers elected to govern housing
cooperatives and condominiums take on a fiduciary responsibility to act
in the best interests of their cooperative or condominium, using their
best judgment and acting in concert as a board.
Shareholders and unit owners have the ability to keep board members in
office by reelecting them at subsequent annual meetings, to remove them
by failing to reelect them or by procedures designed for fast removal.
This workshop provides performance standards to help shareholders and
unit owners determine if theirs is a good board and offers the following
guidelines for board members in upholding high standards of board performance.
First, boards need to know and obey the rules of running their cooperative
or condominium. This, says Mr. Heller, includes knowledge of local, state
and federal laws, as well as the documents of the building. When an issue
arises that can be resolved by language in the proprietary lease or the
declaration of condominium, the by-laws, house rules and any procedures
pamphlets that the building may have, the board should know where to look.
"New board members should read their buildings' documents, not necessarily
to memorize them, but to familiarize themselves and know where items can
be found," he says.
STAYING OUT OF COURT
Boards that do not follow their documents can easily run afoul of the
rules and may even be brought to court by shareholders or unit owners.
An example is the so called "flip tax" or transfer fee, which
is not a tax at all but an amount some cooperatives charge sellers upon
the sale of their units. Boards need to know that they cannot amend the
governing documents of the co-op to institute a flip tax without a vote
of the shareholders.
Conversely, boards may be able to institute other changes, such as the
addition of or changes to sublet fees, without a shareholder vote. A knowledge
of the law and of the building's governing documents will help clarify
KEEP ON TOP OF CHANGING LAWS
As far as laws are concerned, the board and its managing agent must keep
on top of all regulations and amendments that apply to the building. For
example, Local Law 10 regarding facade inspections has been amended by
Local Law 11 of 1998, which requires more invasive examinations and more
specific reports written by licensed architects and engineers (see page
14). Various publications provide information and insights as new laws
appear. CNYC membership is very helpful in this regard.
MANAGEMENT EXCELLENCE IS
Boards must make sure they have a good working relationship with their
property managers. Concentrate on keeping lines of communication open,
so that the board is kept informed of new laws and other developments.
"Talk to your manager," says Mr. Heller."You need to be
able to trust your managing agent, because you depend on him to keep you
informed. "If your managing agent is not doing his job, the board
may find itself in hot water.
For example, the manager should make sure window guard notices are sent
to all tenants, and are completed by all residents who have children under
age 11 living in their apartments. If the manager neglects this important
annual responsibility, the board could very well be held accountable,
says Mr. Heller.
RESPONSIBILITIES OF BOARD
Boards that open the gates for wrongdoing ?even by the slightest amount
? could quickly find themselves at the helm of a sinking ship, say Mr.
Heller and Mr. Goldsmith. To prevent this, always be on guard against
questionable activity by board members or by the professionals you hire.
Some basic rules: "Don't let board members be hired as contractors,"
says Mr. Heller. "Don't hire a lawyer who lives in the building.Don't
engage in self-dealing." This term refers to board members using
building property, employees or services for their own advantage, explains
It applies in very small instances, as well as in very important things.
For example, if a board member uses the building's vacuum cleaner to clean
his own apartment, that could be considered self-dealing. A major problem
for boards is the issue of illegal activity by the managing agent. Although
some managers and firms have been investigated and indicted by the District
Attorney, others may still be taking kickbacks and engaging in other activities
without your board's knowledge.
One way to prevent such problems is to establish and enforce careful
procedures for approving all disbursements, such as purchase orders with
board countersignatures or a policy of having two signatures on all checks.
"It's much harder for a manager to steal when he needs an accomplice,"
says Mr. Heller. In addition, make sure to verify items in all monthly
reports. Boards that do not check their income and expenses are easy marks
Since you depend on a number of professionals and consultants to help
you run your building, it pays to make sure all of these people are performing
their duties competently. Incompetence can rear its head anywhere, so
the board needs to look at everyone.
For example, your insurance agent should be able to recommend coverage
that will keep your building adequately insured. "Your agent should
be visiting your building at least once a year to explain your coverage
and make sure you have enough," says Mr. Heller.Your insurance agent
should also be able to suggest new or improved policies or riders that
can benefit your building. One little-known and inexpensive rider, called
"code coverage", will make sure you are covered if a change
in local laws or other codes makes it more expensive to repair or rebuild
your building, says Mr. Heller.
By contrast, your insurance agent should not try to sell you unnecessary
or illegal coverage. An example is criminal defense coverage, which became
popular following 1997's widely-discussed window guard case, People v.
Premier House, Inc. The caveat, however, is that New York State doesn't
allow this type of coverage.
RECOGNIZE DIRECTORS' SHORTCOMINGS
The board also needs to recognize inadequacies among its directors and
officers. Educational opportunities, mentoring arrangements and briefing
sessions by the president, the treasurer, and the manager will help get
new board members off on the right foot. If a board member does not appropriately
shoulder responsibilities, there is provision in the documents for the
board to remove a member.
Shareholder issues are also important. "Don't ignore problems,"
says Mr. Heller. "If there is someone in your building who may seem
incapable of taking care of themselves, make sure you call in the proper
services or agencies to ensure their well-being and the well-being of
the rest of your residents."
Similarly, don't ignore nuisance shareholders. A noisy shareholder could
lead to other shareholders withholding maintenance payments, and the board's
negligence in such a matter could cause the board to lose in court, says
FOCUS ON COMMUNICATIONS
Good communications between boards and owners is key to a well-run cooperative
or condominium, says Mr. Goldsmith. Owners are interested in any information
that could affect their lifestyles or the value of their apartments. For
example, information regarding board policy in matters such as subletting
and pets, as well as plans for building improvements like lobby renovations
and facade work, should be regularly communicated to owners.
Brief newsletters distributed on a regular basis are an excellent source
of information. Correspondence to owners from the managing agent can also
On major issues, such as expensive building-wide renovations, boards
should not be reluctant to call special shareholder meetings, says Mr.
Goldsmith, especially where owners may be anxious or upset about the work.
Effective communications among board members is also crucial, says Mr.
Goldsmith. Personal agendas of individual members must be swept aside
so that all can focus on the building.
"It is your fiduciary duty to use your talents, intelligence, energy
and effort for the good of the building," he says. "Don't get
involved with ?he said/she said' arguments or ego battles on the board.
Instead, try to set a good example for everyone else. You'll be surprised
how fast an average board can become a good board, and a good board can
become an excellent board."