Change is Good Negotiating Alteration Agreements

Change is Good

David Sack has lived in the West Village John Adams apartment building since 1998. The building is a 21-story, 404-unit, white-brick apartment complex built in 1963 and converted to a cooperative in 1980.

When David moved in, he discovered that the previous owner hadn’t remodeled or updated the apartment in the 40 years that she had lived there — so he knew it was time to make a change.

“Five years ago, I did an extensive gut renovation,” says Sack. “Construction involved removal and modification of absolutely every aspect of the unit. The unit was entirely rewired for a much-needed upgraded electrical system and the piping in the bathrooms and kitchen was replaced. Only the load-bearing walls were left untouched — except for being replastered and painted.”

A Common Scenario

Every building deals with the shareholder or owner like Sack who wishes to remodel or redesign their apartment. It might be an owner who wants to make their new home their own by rearranging the space to better suit them, or another owner who wants to purchase two neighboring units with the intent of knocking down walls and turning them into one larger apartment.

But before anyone in your building starts pounding nails, tearing out cabinets, or completely overhauling their living space, it’s their responsibility to find out what types of alterations require the board’s stamp of approval, and get that approval before starting their project.

“When you move in, you are presented with house rules that state very clearly what is required when you want to renovate your apartment,” says Howard L. Zimmerman, principal owner of Howard L. Zimmerman Architects PC in Manhattan.

However, Zimmerman further explains that the word “renovation” has different connotations to each board, so it’s important to review the documents carefully, and make sure shareholders know the rules. “To one board, a renovation could mean a small project, such as decorating, refinishing floors, painting, or new cabinets, but to another board a renovation means that you are putting up or knocking down walls, altering a kitchen or bathroom, or even combining apartments,” says Zimmerman.

Jonathan Steinberg got lucky. When he purchased his Upper East Side co-op, he found that the building was run like a condo. “There was no nosy board, no board approval process, and I had no restrictions on the changes I could make on the apartment,” says Steinberg.

So Steinberg purchased two one-bedroom apartments, cut a hole in the wall to join the two apartments together and other than some other minor decorating changes, the construction was complete.

“Other people have come in and tried to change the rule to make it more restrictive, but they failed miserably because those of us who bought here bought it because of the way it was.”

Anatomy of an Agreement

Not all buildings are like Steinberg’s, of course — most require that shareholders sign an alteration agreement spelling out exactly what will be done to the apartment and submitting big changes for board approval.

“Most agreements are comprehensive; they require the plans and specs to be described and approved by the board’s architect or engineer at the expense of the shareholder and unit owner,” says David L. Berkey, a partner at Gallet Dryer & Berkey, LLP in Manhattan.

“The agreement should also include provisions for comments or changes the unit owner will have to complete if the board requires,” Berkey continues. “The agreement provides insurance requirements – general liability, workman compensation insurance, and provisions for dealing with hazardous materials such as asbestos and lead paint.”

Agreements with shareholders should also include important start and finish dates. According to Berkey, “If the contractor does not finish in that period of time, there may be what’s called a ‘liquidated damages provision,’ so if work extends beyond date, the unit owner may be fined because of time constraints and supervision issues.”

Berkey also says that it’s a good idea for your building to require a deposit into an escrow fund, so that should the shareholder’s project extend beyond the time commitment or cause damage another apartment, the funds will be available to remedy the situation.

Finally, a well-drafted alteration agreement should contain a clause stipulating that it’s the unit owner’s responsibility to make future repairs or replacements to items they’re incorporating into the apartment.

“For example,” says Berkey, “fixing the new bathtub is the responsibility of the current unit owner who installed it. If the owners move, the successor will agree to the obligations that were undertaken by the previous occupant.”

While it may sound like the board is expected to play Big Brother watching over shareholders’ every remodeling move, Zimmerman explains that keeping a short leash on shareholder remodeling projects is just good sense. It helps maintain both building security and the sanity of other residents.

“A building cannot maintain enough control over itself,” says Zimmerman. “Imagine having several renovations going on at once, and 10 or 15 unsupervised, unchecked contractors in a building. They can wreak havoc. It can also be taxing on the building personnel, housekeeping, garbage deliveries, and so forth. It’s really about traffic control.”

If shareholders are required to provide plans for an alteration agreement, they need to hire an architect experienced in co-op and condo rules and regulations to help determine if their ideas and expectations for the project are reasonable and feasible.

“The first thing I do is ask the owner for the house rules,” says Zimmerman. “I want to know the ground rules before we get started. Knowing the rules in advance is a lot less painful then finding them out later on. Later on it costs you money and time.”

Architects also consult on the side of the board, reviewing shareholders’ plans and making sure the project doesn’t violate any of your building’s house rules.

“When I am the architect for the board, I’m not here to comment on design,” says Zimmerman. “I’m looking to protect the infrastructure so I know the owner is not moving heat risers or the arteries of the building — the plumbing and electric — are all intact.”

Getting the OK

In some situations, however, boards may approve renovations to piping or valves or other areas that may benefit the entire building. “When the shareholder is paying for remodeling to be done to old piping or valves, it is no cost to the board to improve the building,” says Zimmerman.

When your board architect is reviewing the plans, he or she is also looking for other potential complications, such as window alterations that may not be compatible with the overall aesthetic of the building, inadequate or overpowering electrical service, soundproofing issues, and location issues — especially the relocation of “wet-over-dry.” That’s when a bathroom is moved over a bedroom.

Depending on the level of renovation the resident wants to do, your board may be justified in taking some time to make its decision. According to C. Jaye Berger of the Law Offices of C. Jaye Berger in Manhattan, “It could take a year, depending on how extensive the renovation is, and it might take longer if you have to go back and forth trying to satisfy [each party’s] requirements.”

It’s also important to remember that your board has the power to turn down any remodeling request. “Boards have the freedom to turn down anything they want,” says Douglas Heller, a partner with the Manhattan-based law firm of Friedman Krauss & Zlotolow LLP. “There aren’t standards — it’s a business judgment rule. The shareholder can sue for being turned down, but they’re probably not going to beat the board unless the decision was somehow discriminatory.”

Once your board has approved a shareholder’s request and they’ve begun their project, the guidelines that were set forth in the final agreement are expected to be followed. The vast majority of projects go off without a hitch, but there are cases where residents have tried to renege on the conditions of the agreement, or sneak things in under the radar, as it were.

“We’ve shown up on a job site where the unit owner had just requested to paint, and they turned out to be combining three apartments,” recalls Zimmerman. “Or they say they’re just changing the kitchen cabinet doors, but then they’ve completely demolished the kitchen and are building their dream kitchen.”

Abuse of an agreement or violation of agreement terms should immediately result in the shutdown of the shareholder’s project. “The board will call a lawyer and ask for a cease and desist order, get an injunction to stop the renovation, and make the owner return it to its previous condition,” says Berger. Given the expense and time such a move takes up on both sides of the table, it’s best to work out all the particulars ahead of time and not try to pull any fast moves after the ink has dried.

Sack needed board approval, but he was not asked to alter the plans in any way. “I worked with a professional interior designer who knew what could and could not be done to a unit such as mine,” Sack says.

For example, he explains that there was no chopping into the ceiling, no hot tub on the terrace and no modification of exterior walls — all of which were outlined as prohibited in his house rules.

“I was also extremely lucky to have a building super who was very helpful and made the process a smooth one,” says Sack. “Aside from the astronomical expense of New York City apartment renovation (debris removal cost tens of thousands alone), I was very happy with the experience. My alterations and improvements have probably increased the value of my apartment by 40 percent, and that does not include overall real estate appreciation.”

The idea of redoing the kitchen or installing a deluxe new shower in the bathroom is exciting for lots of apartment owners — and it’s doable, as long as your board makes clear the expectations that must be met before the decorators arrive and the hammers start to fall. By working with the shareholder to iron out all the details beforehand and having rules on the books that spell out the whens and hows of apartment renovations, you can have peace in your building — and your shareholders can have their dream kitchens as well.

Lisa Iannucci is a freelance writer living in Poughkeepsie, New York.

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