New York State Legislature’s Onslaught of Co-op Proposals Solutions in Search of a Problem

The 2021 legislative session of the New York State Legislature has presented an unprecedented number of proposed bills seeking to reform the way housing cooperatives operate.  Many of these bills are ill-conceived in our view, and will serve no benefit to cooperative boards and their shareholders. In fact, many of these bills may in fact harm the housing cooperative community.  

Below are brief explanations of three of these bills now pending in the New York State legislature:  

The Good Cause Eviction Bill (S-3082/A-5573)

This bill, if passed, would present fundamental changes in the way a co-op would be able to operate. On its face, this bill clearly is designed to protect rental tenants from unscrupulous landlords, but unfortunately co-ops are swept into this legislation since the shareholder relationship with the cooperative corporation is technically that of a landlord-tenant relationship.  

This bill has been called ‘universal rent control,’ and essentially caps rent increases in New York State at 3% per year, regardless of any increase in operating costs for the building as a whole. Obviously, this bill flies in the face of fundamental best practice for a corporation to maintain a balanced budget. In addition, as stated above, a housing cooperative does not derive any profits and all excess monies are re-invested in the co-op’s coffers.  

Transparency in Cooperative Housing Corporations (S-4595)

Unlike the Good Cause Eviction Bill, this proposal is specifically drafted for cooperative corporations. While this legislation appears to be well-intended, it could result in major obstructions to the operations of a co-op. This legislation adds a new layer of statutory requirements - many of which most cooperatives already adhere to voluntarily.  

These requirements include: allowing shareholders to attend board meetings (except executive sessions); making complete minutes of all board meetings available to shareholders no later than one month after a board meeting; soliciting approval of all shareholders on the annual budget; barring the employees of management companies from serving on the boards of communities managed by their employer; securing board approval of all non-emergency capital improvements in excess of $50,000.00; subjecting all non-emergency capital improvements in excess of $50,000.00 to a bidding process; making all expenses and receipts available for shareholder review on three days’ notice; and making all notices of violations of any law, code, rule or regulation by a governmental body available to all shareholders and residents within two weeks of receipt.

As stated above, many of these statutory requirements are already common practice. However, codifying these practices by statute limits the board’s ability to act in the best interest of the cooperative in each instance. In addition, the language is vague when it comes to application, and is silent on remedies for shareholders if the statute is violated, other than the enforcement of that particular provision being challenged.   

Finally, the requirement to approve the annual budget is onerous, and could thwart the smooth operations of the corporation. This provision in the statute directly contradicts the terms and conditions of the bylaws and proprietary lease of almost every cooperative, which directly give the board the power to prepare a budget.  Certainly, this provision would be subject to judicial challenge, since it will wreak havoc on the operations of the hundreds of thousands of co-op boards in the New York area.

The Reasons Bill (S-1149)

Over the last decade, there has been a strong push from the real estate brokerage industry and human rights activists to require housing cooperatives to give reasons for their denial of an application by a prospective purchaser. These bills have met with fierce resistance from the co-op community, since disclosing reasons for rejection can be fraught with liability for the board members, who are themselves volunteers. In this session, there are numerous so-called “Reasons Bills” being introduced. Section 1 of S-1149 is particularly alarming to the hard-working volunteer board members in this area. This section states “the legislature finds and determines, not infrequently, a co-op Board rejects what appears to be a well-qualified customer.” It further states that “Often, the prospective purchaser has concerns that the rejection was in fact unlawful discrimination.” In our view, this section is pure conjecture, and no proof is provided whatsoever as to its validity.

We can all agree that discrimination at any level is abhorrent. However, in the situation of a co-op rejection, the applicant can bring a complaint to the Human Rights Division of New York State or their local jurisdiction’s Human Rights division. These agencies will investigate and vet the allegations at no costs to the applicant. This avenue of redress thoroughly protects the co-op applicant without any cost associated with it. A requirement to disclose reasons for rejection creates fundamental issues that could lead to a multitude of issues and unintended consequences. For example, who gives the reason? How is the reason transmitted? How specific does the reason have to be? All these issues can give rise to increased litigation, which will be of tremendous detriment to the cooperative corporation.  In addition, many good, fair-minded board volunteers might decide to withdraw from serving on their board in light of the increased liability imposed by this statute.

Although the cooperative form of home ownership has its’ share of issues and problems, we feel this incessant need to reform the current model is overly ambitious and misguided. Please remember that a co-op corporation does not derive any profits; all income over expenses goes right back to the cooperative’s bank account; the board is made up of volunteer shareholders who are elected by their fellow shareholders, and most buildings are run with the help of professional management; professional staff; general counsel and accountants. We feel these proposals are solutions in search of a problem.

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5 Comments

  • My cooperative management has made no-bid, open ended agreements for major work on the exterior of our building, under advice of two management companies. The first was paid fully, and took our entire reserves: Three million. New Board, new management company. Again an exterior renovation, a no-bid, open ended contract, this time with an OSHA fined, violator company, whose published fines and censure ensured they never use their own major equipment. Their practices also were very expensive, and worker were under equipped and supervised. A Board that allows management to propose a no bid contractor need the discipline of New York State law, requiring multiple bidders and clear views of all dealings. As an old New Yorker, the word “kickback” loomed in my mind, vis a vis these very poor contractor choices. (Perhaps a deadline for any contracted work to be done would help as slow walking the work at the convenience of the contractor is another feature to eleminate.
  • Our Board had made two contracts to repair the exterior, under advice of two management companies. Our Board took the word of management company one: 3 million dollars. The expense was wounding. That Board was voted out. Our new Board hired another management company. That management co. recommended and proposed a single exterior repair vendor. The company had a published OSHA violation. They were fined and disallowed from supplying major equipment. Has to be rented. Their men were ill equipped, lacking hard hats, for instance. Point is, management companies may have some skin in the choice of a vendor and encourage no bidding. Solid Boards are not persuaded so easily. Shareholders pay, several ways; morally if a worker is hurt or killed due to a sloppy, “no choice” recommendation.
  • While I agree with you regarding the "reasons" bill, I disagree with you on certain other changes. In our small building, virtually everything was withheld from shareholders under the guidance of a president who just resigned. We were not allowed to attend any meetings, we did not receive minutes, and we were excluded from giving input on many major decisions (like aspects of a new elevator). They spent whatever they wanted. Under that president, the board actually had a secret meeting with new prospective shareholders since they wanted to make the decision without the shareholders. Note that we are less than 15 units, and for over 40 years ALWAYS had every shareholder attend meetings re new shareholders as well as board meetings. Since the BCL does not give many rights to shareholders, we would welcome some of the suggested changes (but certainly not all).
  • I think S-4595 would be great especially for co-ops where shareholders feel they are not included in discussions. There a lot boards that feel they can do whatever they want and they are not truly representing the shareholders the right way.
  • Chitra Karunakaran on Friday, June 11, 2021 9:38 AM
    The lawyer (co-op board President?) who presented this article needs to have his pro-business greedy lawyer, anti tenant/ shareholder views challenged. and rightly dismantled. Many co-op unit owners have long been oppressed by autocratic boards practicing a deplorable lack of transparency in their business operations, which also includes inadequate maintenance of bookkeeping and other records. In our small UWS co-op we have been hit with capricious unwarranted assessments. Transparency is key to undoing the actions of unscrupulous boards that seize co-op Board power without meetings and elections and control lawabidng lessees. We pay. Justice and require require that we must be properly represented and heard on issues everyday co-op life. If co-op Boards don’t want to serve, get out of the way and let others willingly serve a greater cooperative good with due diligence. I urge Cooperator to present an article from the viewpoint of persons who actually live in these co-ops and have suffered the indignities and economic consequences of arbitrary co-op board actions mainly resulting from Board lack of transparency. Co-op Boards are the last bastion of the plantation economy, speaking from a sociological science perspective, a perspective notably lacking in the attorney's concerns. Finally, Co-ops in many neighborhoods are a vehicle of school and housing segregation in ways that condos don't, because of restrictions in sublets and covert rejection of unwanted potential buyers who suffer discrimination is co-op ownership. NYSenate is correct to introduce legislation advocating transparency and equity in ALL Co-op operations. I urge commenters to contact legislators in NYC and NYS to work cooperatively to ensure passage of reform legislation tha has a direct impact on quality of life of co-op residential owners.