Following up on the success of the informal roundtable discussion jointly hosted by The Cooperator and the Federation of New York Housing Cooperatives and Condominiums (FNYHC) this past February, a group of area co-op and condo board presidents and representatives of the FNYHC reconvened over fresh bagels and coffee for a second roundtable discussion June 24th.
Topics on the agenda this time ranged from the impact of the recent 40 W. 67th Street vs. Pullman court decision to what security measures various co-op and condo communities are taking to secure the safety and property of their shareholders. The assembled board presidents represented buildings of all descriptions; from high-end luxury developments to moderate- and lower-income cooperatives to communities of just a few units to multi-building high-rises.
Moderator Albert Pennisi, FNYHC president and Queens-based real estate attorney and senior partner with the firm of Pennisi Daniels & Norelli, LLP, said the forums are educational because they "foster a sense of the issues and challenges facing co-op and condo boards throughout the city and in Nassau and Westchester counties."
Roundtable II brought back former participants Albert Wolfson, president of The Tiffany at Westbury, a community of senior citizens in Nassau County and the only condominium represented at the roundtable; Jim Quinn, president of the North Shore Towers, a six-building luxury co-op complex consisting of 1,844 units in Queens; Jerry Reiser, president of Nostrand Gardens, a 350-unit co-op in Brooklyn; Andrea Hirshman, president of 30 Ocean Parkway, a recently-converted building in Brooklyn, and Jordi Reyes-Montblanc, president of the Housing Development Fund Council Corp. (HDFC) and a low-income cooperative housing development in the Hamilton Heights section of Upper Manhattan. New to the group was David Baron, president of Bell Apartment Owners Corporation in Bay Terrace, Queens. Also in attendance were Federation executive director Gregory Carlson, and Federation board member Mona Shyman.
Dominating much of the morning's discussion was the landmark court decision handed down in the much-publicized case of 40 W. 67th Street vs. David Pullman, which essentially has handed co-op boards and shareholders the power to vote troublesome or objectionable shareholders out of their buildings without relying upon the decision of a court or jury for permission to do so. [
The Pullman decision, according to Pennisi, had sparked a tremendous amount of discussion within the co-op community. "We've gotten a lot of questions and inquiries from people thinking that the Pullman decision equals carte blanche; that if they have some small problem with a tenant shareholder, [their board] can terminate them. That's not the case - the conduct must be objectionable under the building's governing documents."
Pennisi offered some words of advice for boards eager to begin eviction proceedings against longtime pain-in-the-neck shareholders. "I always tell my boards: look at your governing documents. Most newer co-ops' proprietary leases do contain an objectionable conduct clause, but not all of them do, so you need to make sure your building has one. You also can't be discriminatory - you can't single one person out. You have to act within the corporate purpose, you have to act in good faith, and you have to have the proprietary lease provisions that allow you to act in the first place."
An interesting point that arose during the discussion was the difference between corporation documents allowing objectionable shareholders to be ejected by a majority or two-thirds vote of all the shareholders in the buildings, and those allowing the board to act unilaterally in deciding to give acrimonious residents the boot.
"Some boards are wrestling with the fact that some cooperatives do have provisions that allow these things to be voted on and decided on by just the board," said Pennisi, "But [a case like] that hasn't come up - yet."
Baron pointed out some of the benefits of empowering a board to vote to evict without calling a special shareholder meeting. "Our board has the right to vote to terminate a shareholder's lease," said Baron. "We're a 300-unit co-op, and it's hard to get two-thirds of the shareholders to come to a meeting, much less to vote against their neighbors."
Baron went on to say that, "My co-op isn't one building; it's five separate buildings on a large parcel of land, so not everybody knows everybody. The [board's ability to vote out objectionable tenants] is something that our governing documents provides for us."
The assembled presidents also weighed in individually on whether they thought that the Pullman decision would ultimately prove to be a good thing for boards dealing with impossible residents. According to Quinn, "I'm pleased that Pullman has better defined what can be done and under what criteria it can be done. I don't for a moment think that it will prevent [objectionable] behavior on the part of some people - but at least it makes it easier to deal with them and defines how we can do that."
"I think Pullman is good for any co-op," added Baron, "because it upholds the board's judgment - the court is not going to substitute their judgment for ours if we act in good faith in furtherance of our co-op. The Pullman case is a powerful tool for boards, period."
Pennisi concurred to a degree, but pointed out, "The courts have ruled since Levandusky - the business corporation law case - that it doesn't necessarily matter what the objectionable conduct is, so long as the board acts in good faith. The court doesn't have to agree or rubber-stamp what you as the board decide to do, as long as it's in good faith, doesn't violate the corporate documents, and is not discriminatory. That's the scary part, because boards are going off half-cocked."
Hirshman though had some reservations. "As president of a board, it's awfully nice to think that if someone's truly objectionable, they can be removed, but I'm also concerned about the checks-and-balances of it all. If you get a board that decides it doesn't like someone, [a shareholder] can go to court and say that there was malice or discrimination, but as a shareholder, you're really at the whim of your board. Sometimes people on boards just aren't reasonable - and that's reason for a concern."
According to Carlson, "I get calls from shareholders where the board has been entrenched for many, many years, has not had an annual meeting, has not given out financial statements - they're their own little kingdom, and there's where you have the propensity for problems with abuse of power. That's something you have to be wary of."
Regarding the issue of imperious or vindictive boards, Reyes-Montblanc commented that, "Because of the articles appearing in the news, Pullman has been misinterpreted. When the articles came out, I would get calls from boards asking, "˜Can we do this? Or this?' And we tell them, "˜cool down!' What I like about Pullman was that it was based on a two-thirds vote of those shareholders. I believe in the power of the board, but not just that power - getting the shareholders to participate in the decision was important. If a joint decision of the board is backed by the shareholders, there shouldn't be any doubt that the person is obnoxious, and they're not wanted in the buildings."
Pennisi believed that the issue of unilateral board evictions is "the gray area that nobody's written or talked about yet, and we haven't had a case where that was the situation"¦but we will."
The conversation then moved on to the issue of unpaid maintenance; whether arrears on the upswing, given rising maintenance fees and the poor economy, and how the various presidents and their boards have opted to deal with the problem.
According to Baron, "In my co-op, maintenance arrears aren't a big problem, but in my other work where I manage properties for a living - there we're seeing a lot of problems in middle-income co-ops. Maintenance is going up because of insurance, fuel oil costs, and assessments, and it's exacerbating an already difficult situation. And now with the property tax hike, it's a bigger hit that shareholders have taken. Some who were already slow to pay before have lost their jobs because of the bad economy. Boards are often loathe to start actions against their neighbors, but you have to remind them to act. I've found that in most buildings, arrears have increased just because of the large increases buildings have had to enact. Arrears are climbing in almost all the co-ops we manage."
Reyes-Montblanc said he has faced similar difficulties in his co-op. "Some people just don't pay, and you have a weak board that's afraid of them and won't take them to court. It becomes like a virus; when you have one unit that goes for three or four or six months without paying, pretty soon you've got half the building that's not paying. People who would otherwise pay come out and say, "˜they're not paying, so why should I?'"
The group then went on to discuss the various methods by which boards are working with struggling shareholders to get them caught up with maintenance to ensure prompt payment in the future. Options included using mediation to work out manageable payment schedules for shareholders, negotiating lump-sum payments, and even arranging for shareholders to exchange their time, talents, and work for the balance owed. Several of the assembled board presidents also pointed out the difficulties of dealing with those shareholders whose arrears were related to emotional problems or even mental illness, and exchanged experiences of arranging home health care and competent financial advice for shareholders living without a family support system.
Finally, Pennisi introduced the subject of building security and how the participants were handling the issue in the post-WTC city. "Some people after 9/11 are still very concerned about who comes in their building," said Pennisi. "Where they come from, what we know about them, and so forth. I'm interested to hear about the measures you've taken in terms of security."
With rare exception, most of the panelists felt that for the most part, while awareness of security issues was still piqued, day-to-day building operations were largely back to normal.
According to Quinn, "We've constructed a more secure environment based on the national color codes, but in terms of admission screening, I think we're back to business as usual. If the code is a high-level warning, we check cars, buses, and do more detail checks, and have more security in visible places. We have very specific reactions to the situation. Otherwise, we watch and observe."
Said Wolfson, "We have a number of ground-floor apartments where people have outside access, or inside access from a hall. Last winter, someone attempted to break into a ground-floor apartment. We called in some security people, and asked if residents wanted security, and many opted for grates and alarms. Even with the risk of break-ins, residents keep letting strangers into the building - we can't seem to stress to them enough; if you don't know the person, don't ring the bell, let someone who knows them ring them in."
While everyday security may not be at the height it was a year or so ago, buildings are still doing background checks, checking criminal and litigation histories of not only the people who apply to work in their buildings, but also the people who want to live there.
After the success of the first two roundtable breakfasts, The Cooperator in conjunction with the FNYHC hope to host more such events with board presidents, property managers and other real estate professionals to discuss a wide range of issues and problems facing anyone and everyone involved with the co-op and condo community in and around New York City. If you are interested in participating in The Cooperator's next roundtable, contact