As managers, residents, and board members of the city's residential buildings gear up for 2011, sweeping up the tinsel and cookie crumbs leftover from holiday parties isn't the only job at hand. From bedbug disclosure rules to a proposed federal ban on flip taxes, there is also an array of new legislation that promises to have an impact on managers, boards, and the co-op and condo communities they represent and serve.
Flip Taxes Banned?
One of the hottest topics being debated among co-op and condo owners is the Federal Housing Finance Agency (FHFA)’s Proposed Guidance on Private Transfer Fee Covenants, which was published in August 2010. The rule would restrict Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from investing in mortgages in buildings with private transfer fees —better known as flip taxes. Many are objecting strenuously to the proposal, feeling that as it is currently drafted, the rule would effectively eliminate flip tax fees—a revenue stream upon which many buildings rely.
Critics of this proposed rule say that the FHFA’s ban was developed with the intention of eliminating current provisions that allow developers to receive revenue long after they have sold all their ownership interests in a development. In its Proposed Guidance, the FHFA states: “The typical one percent fee at the time of resale is neither a minimal nor a reasonable amount; further, such fees may be in excess of one percent. Such fees increase by a meaningful amount the seller’s and potentially the buyer’s burden at the time of a property sale. Expanded use of private transfer fee covenants poses serious risks to the stability and liquidity of the housing finance markets.” Co-ops, critics say, present a unique situation that was not contemplated by the FHFA, and are not subject to the same abuse.
"The [flip tax] fee is not onerous when it directly benefits the community and individual homeowners by funding reserves, capital improvement projects, and ongoing co-op association obligations," says New York Congressman Eliot L. Engel, (D-17) of the U.S. House of Representatives, serving the Bronx, Rockland, and Westchester counties. "This enables monthly maintenance fees for co-op dwellers to remain affordable. In its absence, co-op boards would need to substantially increase rates to afford improvements and daily upkeep. It is unfair that the vast majority of developers, investors and the hard-working families who live in co-ops suffer due to the shady methods by some to ‘game the system.’ As our housing market struggles to recover from the devastating effects of the past three years, we must not add to the problems and hinder both resale prices and current living expenses. FHFA needs to understand the critical and necessary role transfer fees play for millions of Americans who benefit from it daily.”
Upon FHFA’s publication of the proposed rule, the federal agency invited public comment. Many co-op shareholders, in New York especially, responded by sending emails and letters, and by responding through the Federal eRulemaking Portal located at www.regul ations.gov. These letters are available to the public on the FHFA’s website. One letter on behalf of a New York cooperative corporation, states, "Without transfer fees, our board would have to substantially increase monthly carrying charges in order to maintain our building. This will inflict financial hardship on our shareholders/unit owners and could result in defaults, displacement for individuals and, poorer quality of lives. We urge FHFA to protect the right of housing cooperatives and condominiums to preserve affordability by continuing to collect transfer fees.”
The press has been crawling with reports over the last year about the growing issue of (and attendant hysteria around) bedbug infestations in not just apartment buildings, but movie theaters, clothing stores, and other unexpected places. To allay fears—and hopefully curb the invasion—bedbug infestations in apartments and buildings must now be disclosed, according to New York City Administrative Code § 27-2018.1, which Governor David A. Paterson signed into law on August 31, 2010. The code also requires that new residential tenants in New York City be given a one-year bedbug infestation history before signing a lease.
Moving from pests to pets, dogs and other companion animals are also the subject of new legislation in New York City. The Association of Riverdale Co-operatives & Condominiums (ARCC) has voiced its objection to the proposed New York City Intro 0392-2010, a local law which would permit tenants in the city who live in multiple dwellings and who “openly and notoriously” harbor pet(s) to continue to do so, even if their lease prohibits pets. These tenants would be allowed to keep their pets in their apartments only if the owner or his or her agent has knowledge of the pet, and such owner fails within this three month period to commence a summary proceeding or action to enforce a lease provision prohibiting the keeping of such household pets. The lease provision prohibiting the pet(s) would be deemed waived for the duration of the tenant's occupancy in such multiple dwelling for each species of household pet or pets that is harbored or was harbored in such multiple dwelling, Intro 0392 states.
In opposition to this proposal, ARCC states on its website that “Dogs are NOT the issue. We cooperators are facing an ever-increasing onslaught by legislators to diminish our rights and liberties as independent and legally constituted organizations; and our rights to set the parameters for a way of life in our buildings that is tailored to, preferred by and acceptable to our shareholders.”
Tenant Screening Disclosure
In a move that will merit the attention of any condo owner wishing to lease out their apartment, Local Law 002 of 2010 went into effect in July, requiring any owner or
agent who requests lease application information from a prospective tenant to disclose whether or not the tenant’s information may be used to obtain a tenant screening report, and must include the name and address of the consumer reporting agency or agencies which will be used. In addition, the disclosure must include information that states pursuant to federal and state law:
(1) If the person requesting the information takes adverse action against a prospective tenant or tenants on the basis of information contained in a tenant screening report, such person must notify the tenant that such action was taken and supply the name and address of the consumer reporting agency that provided the tenant screening report on the basis of which such action was taken;
(2) Any prospective tenant against whom adverse action was taken based on information contained in a tenant screening report has the right to inspect and receive a free copy of the report by contacting the consumer reporting agency;
(3) Every tenant or prospective tenant is entitled to one free tenant screening report from each national consumer reporting agency annually, in addition to a credit report that should be obtained from www.annualcreditreport.com ; and
(4) Every tenant or prospective tenant may dispute inaccurate or incorrect information contained in a tenant screening report directly with the consumer reporting agency.
More on Deck in Albany
At the state level, pending legislation for co-ops and condos is continuously on the docket. Some bills have been lingering for years with little (if any) movement in the legislature. There are approximately 35 bills pending in the New York state Assembly and state Senate directly pertaining to co-ops and condos.
A few bills in the pipeline propose to create new resources for co-op and condo owners, some of which have also been met with criticism.
New York State Senator Liz Krueger, (D-26) authored legislation, which was referred to the New York State Finance Committee in May 2010, and referred to the New York State Assembly Housing Committee in June 2010, which proposes to create a Co-op and Condo Ombudsman office. The proposed legislation is intended “to help co-op shareholders and condominium owners understand their rights and responsibilities and reduce the need for litigation.” The bill, S07958/ A11452, known as the “Cooperative and Condominium Ombudsman Act,” proposes to amend the tax law to require cooperative corporations and condominium owners associations to pay six dollars per unit per year. This six dollar residential unit fee, collected by the Department of Taxation and Finance would be paid to the State Comptroller, would supply the funding for the Office of the Cooperative and Condominium Ombudsman.
Aside from conflict resolution, the office’s other responsibilities would be “to prepare educational and reference materials, to organize and conduct meetings and public hearings, to...offer monitors and vote counting services to assure fair elections for board membership, and to provide advice to the Governor and Legislature regarding new and existing legislation which affects cooperative shareholders or condominium owners.”
Opponents of the bill say that there is no need for this office because appropriate mechanisms are already in place to handle building issues, and others object to the annual fee.
Housing Court Subpart and Co-op/Condo Bill of Rights
A bill introduced in 2009 by Assemblyman Jeffrey Dinowitz, (D-81), A00871, proposes to create a separate subpart of the housing court devoted to proceedings involving cooperative and condominium buildings falling within the jurisdiction of Housing Court. The bill states that the cost to implement this subpart would be negligible and would expedite cases relating to cooperatives and condominiums because they would be heard by judges more knowledgeable in this area. The drafters of the bill hope that that subpart would “result in better-honed and fairer decisions.”
Another bill on the state legislature’s docket proposes to enact a “Bill of Rights” for apartment owners. Resolution 0405-2010, which refers to legislative bills S04725/A04948 is being considered by the New York City Council. The proposed resolution introduced in August 2010, would call upon the New York State legislature to implement a bill of rights for cooperative shareholders and condominium unit owners, and would direct the Attorney General to promulgate a handbook summary of these rights and the procedures available to enforce them.
Co-op-to-Condo Conversion Legislation
Co-op to condo conversions is an issue being given special attention by legislators in Albany, and several regulations are being proposed. A bill pending in the Housing, Construction, and Community Development Committee of the New York State Assembly, S01659/A00537, would require that the board of a converted cooperative or condominium must be comprised of a majority of members elected by shareholders or owners in occupancy so that control of the building is turned over to the unit owners as soon as possible. This regulation would apply only to plans of 20 or more units.
Other co-op and condo conversion-related pending legislation include: A05610, which would protect non-purchasing senior citizens threatened by conversion-related eviction; A06096, which relates to vacancies and illegal use and occupancy during conversions; and S01013, which provides for omnibus co-op or condominium conversion requirements, including existing tenants’ right to purchase and capital replacement reserve fund, among others.
Still, more assorted co-op and condo-related legislation is pending in Albany. These bills include A01128, which would exempt cooperative and condominium board members from criminal liability for building and multiple dwelling law violations except where they had knowledge; S01659A/A00537, which governs election of board by residents of cooperatives and condominiums; A03553, which would requires applications to purchase condominiums or cooperatives to be acted upon within forty-five days, with failure to do so resulting in automatic approval; and S3132/A01211, the “written rejection” bill, which would require cooperative housing corporations to provide a prospective purchaser with a written statement of reasons when withholding consent to a purchase.
Only time will tell whether these pending bills will move ahead in Albany. “I’m hoping that co-op legislation will become more of a priority in the legislature than it has been in the past because there really hasn’t been a whole lot of legislation that’s been passed recently,” says Assemblyman Dinowitz, who has sponsored several co-op related bills now pending in the statehouse. “What I’m going to attempt to do in this legislative session is I’m going to try to work with some of my colleagues in districts that have a lot of co-ops, and at least try to get more attention put on co-op issues” and to “make a larger effort than we have in the past.”
Elizabeth Ilene Robbins is a freelance writer and a June 2010 graduate of the Benjamin N. Cardozo School of Law.