New Law Creates Major Change In Design Industry in the State of New York
By: C. Jaye Berger, Esq.

Effective January 1, 2012, there will be a new type of entity in the architectural and engineering fields in the State of New York known as a “Design Professional Service Corporation.” As a construction and co-op attorney, I can say that it is rare to have a new law which revolutionizes the design industry. Up until now, the laws in the State of New York only allowed architectural and engineering firms to be owned solely by licensed individuals in those respective fields. In other words, an architectural or engineering firm may have employees who have worked for them for twenty years, but who have for some reason never became licensed in that field. There may be interior designers who have perhaps gone to architectural school, but never became licensed. These individuals could never become shareholders in the firm under the existing law, which limited their advancement within the company. This also caused some people to perhaps “secretly” do what they knew they could not do openly.

This law would now allow individuals who are not licensed, to owns shares in architectural and engineering firms, subject to the limitations within the law requiring greater than 75 % of the shares to be owned by licensed design professionals. One possibility is that an employee stock option plan could be the largest shareholder as long as greater than 75 % of the plan’s voting trustees and committee members are design professionals. In other words, the State still wants licensed design professionals to be in control of and running the company. The same percentage is required for the directors and officers. The President, chairperson of the Board of Directors, chief executive officers and the single largest shareholder must all be licensed design professionals.

This would open the doors wide to allowing designers in other states to do business in the State of New York and would make New York a more competitive place to do business. It would also apply to combinations of the other licensed professionals ie. architecture, engineering, landscape architecture and land surveying.

It is interesting to note that many other states and countries already allow employees in design firms, who are not licensed, to become owners in the firm. In the past, this made New York State architectural and engineering firms less competitive with firms in other states and in other countries in the same market place. This new law came about as a result of much lobbying by design professionals, especially engineers, and opens up a whole new chapter in the design industry. It allows employees with company stock ownership plans to have a piece of the ownership and would allow outside investors to come into these firms in a limited way. There are a lot of possibilities. Of course the services would still need to be rendered through licensed individuals.

It would be set up much like architecture and engineering firms currently under the Business Corporation Law and the Education Law. We are all familiar with Professional Corporations which have “P.C.” at the end of the name. This new entity would have “D.P.C.” at the end.

There are a number of rules and requirements under the law, such as the requirement for a certified statement to be filed every three years containing certain information about each shareholder, officer and director, such as their name and address. Shareholders leaving the firm would need to sell their shares back to the corporation. This type of restriction would have to be noted on the stock certificates. If the corporation failed to redeem the shares, there could be litigation to recover the purchase price, with an award of reasonable attorneys fees. This is significant, because there are few areas in which attorneys fees can be granted.

It will be interesting to see the evolution of the rules, regulations and shareholder agreements governing these companies and how it changes the practice and the firms relationships with clients.

QUESTIONS & ANSWERS

Q: I had lived with my grandfather in his apartment in a Mitchell Lama building for many years. He passed away and I was granted succession rights to the apartment by the Board. Now they tell me that I must move to a smaller apartment or move out. What rights do I have and what can I do to stay in my apartment?
-- Confused and Upset Shareholder

A: There are many questions that need to be asked in order to answer your question. To answer your question you would need to give more information. If you send the particulars to our E-Mail address info@fnyhc.coop or call the Hot Line 718- 423-4438 we will get the information you need. You might have to go to DHCR and/or HPD to make the decision. Again, your problem can not be answered simply. Please call and we will help you.

Gregory Carlson,
Executive Director
Federation of NY Coops & Condos

Q: I live in a Cooperative that still has rent stabilized tenants (approximately 40%) in the building. There is a question from Board members and shareholders as to how the rent stabilized tenants garage rent is computed since many of them pay less than the shareholder residents. The sponsor collects the rents from these apartments as well as the garage rents and he claims that he has not increased the rents on the garage spaces. How can this be resolved?
-- Board President in Queens

A: It is a simple question, but the answer may be very complicated. I would need to see the complete set of facts to give you a more specific answer, but at this time I can give you a general idea. Your Cooperative is probably one that was converted in accordance with a “non-eviction” plan. The tenants that did not purchase their apartments remained rent stabilized for as long as they renewed their leases in accordance with Rent Stabilization regulations. Included in these protections are the statutory limitations on the raising of the rents. This would include the garage spaces and/or parking spots occupied by rent stabilized tenants. According to Rent Stabilization Association, whenever the lease on their apartment is renewed the garage space is also renewed. Whatever increase is determined by RSA applies to the garage space as well as the apartment, as well as the time period of the lease (one year or two years). Again, I must impress on you that I would need more facts for a specific answer on your problem. Geoffrey Mazel, Esq. Hankin & Mazel, PLLC Attorney to Co-ops and Condos

Geoffrey Mazel, Esq.
Hankin & Mazel, PLLC
Attorney to Co-ops and Condos

Q: How should the various tax abatements that shareholders receive each year be recorded on each shareholder’s tax returns?

A:A: Each year, shareholders should receive from the Cooperative’s CPA firm and/or managing agent the personal income tax deduction letter and form 1098 describing the real estate tax and interest deduction they may deduct on their personal income tax return. The letter describes the pershare amount and the form 1098 provides the full amount to deduct. There should be a footnote on the Coop CPA tax letter that states that the real estate tax deduction is NET of the NYC Tax Abatement. So when preparing your return, you should calculate your deduction as follows:

Add:
The amounts given on the 1098 form are normally net of the real estate tax abatement and this amount should be used as your deduction on your personal income tax return.

Less:
Shareholders who received the $400 tax refund check from NYC must reduce their real estate tax deduction by this amount.

Less:
Shareholders who received maintenance credit during 2008 for NYS School Tax Relief (STAR), Enhanced STAR, Veteran’s exemptions or Senior Citizen exemptions must also reduce their real estate tax deductions by these amounts.

Will Equal:
The amount to be reported to the IRS.

Of course if you have further questions regarding these credits you should always consult your tax advisor.

Mitchell Unger, Controller
John B. Lovett Management Co.
College Pt., NY

Q: The City of New York Department of Finance (DOF) has issued Real Estate Tax Abatements and STAR Credits to my cooperative including abatements for Senior Citizens and Veterans. How and when do I obtain the benefit of these tax savings?

A: The tax abatements which were published on a schedule entitled “2008/2009 Co-Op Tax Benefits”, by the Department of Finance in December 2008 and in January 2008, are actually credited directly to the coop’s real estate tax account. No check is issued by NYC to the co-op. However you, as the individual shareholder in the co-op, are entitled to a credit to your maintenance account for both the abatement and the STAR credits as well as any other entitlements for Senior Citizen or Veteran. Keep in mind that these abatements are not automatic and you must have applied to be eligible. The Managing Agent is responsible, acting under the direction of the Board of Directors, to either issue a check to you for the exact amount indicated by the Department of Finance in the published schedule or by crediting your maintenance account, as is done by most coops. According to the rules published by the DOF this tax credit must be distributed to eligible shareholders prior to June 30th. Many co-op Boards have elected to offset all or a portion of these abatements with special assessments as a means of offsetting other operating or capital expenses. In this case the Managing Agent will, if approved by the Board of Directors, fully or partially reduce your eligible tax saving by this other assessment, all of which must be allowed by the co-ops by laws.
More information regarding applications, eligibility and the methods used to determine the amount of the assessment, can be obtained by visiting the NYC’s website at www.nyc.gov/finance and clicking on “Tax Reductions”. You may also call 311 if you have specific questions concerning your account.
Condominium owners, who receive their tax benefits directly to their individual tax account, should also check with their managing agent and review their individual account which is available on line at www.nyc.gov/finance. You must know your Tax Block and Lot.

Irwin H. Cohen is President and CEO of A. Michael Tyler Realty Corp. an award winning Property Management firm that has successfully assisted co-ops and condos in the Queens, NYC and Brooklyn for more than 25 years.

Q:

A: Building management has the right to charge the monthly fee because you do not own the storage space., only the storage locker itself. You should use the $350 check toward the monthly fee going forward. Even though you had an agreement that lasted for more than 20 years, building management can charge you $20 per month. Under the law, you did not own the storage space; rather, building management gave you a “revocable license” to use the basement storage facility. A license is an agreement whereby one party gives the other party permission to use property. In this case, building management did not sell the storage room space to you, nor did it lease it to you in perpetuity when you paid $350 many years ago. Management gave you permission - a license - to use the storage space, for the payment of the one-time $350 fee. Since building management and you did not have a written agreement which made the license irrevocable, that is, permanent, building management acted within its rights to change the terms of the license by requiring you and your fellow cooperators to pay a monthly fee.

Ira Levine, Esq.
Great Neck, NY.

Q: I live in a Coop. There is a foreclosure notice by a Bank for the apartment next door to me in the newspaper . How do I go about buying this unit? Do I need Coop approval?

A: The notice you saw in the legal notice section of the newspaper was a notice of sale from a Lender. Your neighbor is in arrears in the payment of their loan from the Lender. In a Cooperative loan, the Lender may commence a non-judicial foreclosure proceeding, which means the Lender can sell the apartment at a foreclosure auction without going through a lawsuit. In your case, in order to purchase this unit being foreclosed, you must go to the foreclosure sale. The time and place of the sale should be listed in the legal notice you saw in the newspaper. Their will be an auction of this unit and the top bidder will have the opportunity to buy the unit. You must be able to pay 10% of the bid amount at the auction in certified check or money order and the balance is usually due within 30 days of the auction. Also, the foreclosure sale is not subject to Bank financing, but usually is subject to Board approval.

Geoffrey Mazel, Esq.
Hankin & Mazel, PLLC

There have been many inquiries regarding future seminars. FNYHC is planning a series of Spring Seminars covering the following topics:
Energy (Electricity, Natural Gas, Oil); Security (making our buildings safer)
Insurance (Building coverage and individual coverage); Relationships with Board Members and Shareholders; Do’s and Don’ts of interviews with buyers; Responsibilities of Management companies to the needs of each building; and many more subjects.
Please contact FNYHC for more suggestions that would be of help to your individual building. Our purpose is to educate Boards of Directors, shareholders and owners of cooperative or condominium apartments. Also, please make suggestions as to where you would like the seminars to be held.
Thank you for your response to our “Ask the Professional” column in the Queens Courier. One question asked by an individual person helps many cooperators with their problems. Thanks again from the Board of the Federation of NY Housing Co-ops and Condos.

Gregory Carlson,
Executive Director

Q: I have always received a credit, deducted from my maintenance in five installments, from the city for the Real Estate Tax abatement, Star, Senior Citizen and Veterans Allowance starting in the February maintenance invoice through June. I did not receive this credit on my February maintenance. I have asked the Managing Agent of my complex for an explanation. He can not or will not give the reason. Can you help?
-- Confused Shareholder in Queens

A: The City of New York did not advise the Cooperative Buildings of the individual apartment abatements in time for the February maintenance invoices. You could contact your Management Company or your Board of Directors as to when the abatement will be given to the shareholders.

Q: I own a condo in Rego Park. There are three buildings in the complex. There are major repairs to be done and not enough money in the reserve fund. If the Board of Managers takes a loan against the three buildings, can the interest on the loan be deducted on my personal income tax return?

A: In a condominium real property, common areas and related improvements to such property are owned by the individual unit owners in common. A loan taken out by the condominium association, not secured by the real estate (IE: the land and the buildings), is not individually tax deductible. For the loan to be tax deductible it must be qualified mortgage interest secured by the property. Specifically, the IRS has four criteria for mortgage interest to be individually tax deductible:

• You must file Form 1040 and itemize your deductions on Schedule A.
• You must be legally liable for the loan.
• There must be a true debtor-creditor relationship between you and the lender.
• The loan must be secured by the real estate.

Carl M. Cesarano, CPA
Cesarano & Khan, CPAs, PC

Q: I purchased my co-operative apartment last year and now I find that I do not have an original Stock Certificate. How do I go about securing that certificate?

A: If you have a mortgage your lender (bank, mortgage broker) has the original Stock Certificate. When you satisfy that mortgage the lender will return the original to you. If you do not have a mortgage, contact your closing attorney or the building’s attorney.

Marc Bresky, Esq.
Represents Cooperatives and Condominiums with offices in Elmhurst, Queens, New York

Q: I am a Board member of a Cooperative that was built in the 1950’s as a Cooperative. We were built under the old FHA Section 213 program. We do not have a proprietary lease, but rather an occupancy agreement, which seems very dated. Should we change it, and if so, how?

A: Good question and one I get asked many times as an attorney for many “213” Coops. The short answer is that the occupancy agreement is generally an outdated document which lacks many of the provisions which a well-drafted and updated Proprietary Lease would contain. Obviously, a document drafted in the 1950’s will contain many provisions that are no longer applicable and conversely, may lack many provisions that should be added. In addition, it would be a good opportunity to put in any other provisions the Board may deem necessary. In order to determine what changes need to be made, you should consult the attorney for the Board of Directors.

In order to amend your occupancy agreement you probably would require a two-thirds vote of all the shareholders. This is usually accomplished at a Special Meeting of shareholders held for this specific purpose. However, before such a meeting takes place, the Board should hold several informational meetings with the shareholders to explain the specifics of the new proprietary lease in detail. This is an onerous process, but serves the Cooperative Corporation well in the long run.

Geoffrey Mazel, Esq.
Hankin & Mazel, PLLC

Q: Members of my board wanted to attend the last seminar but due to circumstances beyond their control, they could not get there. When and where will the next seminar be?

A: Sorry you could not attend. The next seminar is being planned for March, 2009. The subjects will be Health Insurance, Energy and money saving options for co-ops and condos. There is an important issue facing the co-op and condo world. It is called “GREENING”. All people involved in the operation of our buildings MUST be educated in the new methods and materials available to us. On Friday, January 23, 2009 there will be a conference at Queens College at the Student Union Building on Kissena Blvd, Flushing. You will find more details in this issue of the Courier.

The FNYHC will have seminars to continue the education of our staffs and Boards to take advantage of these new concepts. As more information is available it would be forwarded to you via E-Mail if you would send us an e-mail address. Please include the details as to whose address it is (for example, the Board, the Management Co. or someone on your staff).

Q: Can a member of the Board of Directors do contracting work in the building for residents? Can a company owned or operated by a Board member bid on a job for the building? Does it matter if the company is owned or operated by the Board President?
-- Shareholder in Queens.

A: Unless the By-Laws, House Rules or Proprietary Lease of your co-op or condo has a ruling on this practice, there is nothing in the law to prevent a Board member from working for residents in the building, It does leave an unfavorable impression on the residents of the community. The action should be fully disclosed and communicated to the other residents. The problem with a Board member doing work for residents is that the person could be under pressure to choose that contractor. It could be fear of retaliation if you do not choose that contractor, or, if you do choose that contractor because he is a board member, the resident feels he will not have any problems while the work is being done. In any case, the contractor, especially if the contractor is a Board President, has tremendous influence on what is going on in the building. Again, there is no law against it but it is an unsafe practice. As far as the Board President doing work for the building, as I said before, it should be fully disclosed and communicated. The Board President contractor should not be treated any different than those who will bid on the project. Finally, the Board Member who is bidding should recuse himself from any action, discussion and voting on any project he is bidding on.

Gregory Carlson, Executive Director
New York Affordable Housing Management Association
NYAHMA

Q: My Coop Board contracted for a new roof and did not seek Shareholder approval. The Coop then passed a maintenance increase. What is the recourse of the Tenant-Shareholder?

A: This reply, is made with the assumption that the Corporate documents, e.g., ByLaws, Proprietary Lease and Certificate of Incorporation, does not require Tenant- Shareholder approval for Board expenditures. If no, Tenant- Shareholder approval is required, the Board of Directors does not require Tenant-Shareholder approval to make capital expenditures or impose a maintenance increase.

By Albert F. Pennisi
of the law firm of Pennisi, Daniels & Norelli, LLP, a law firm that represents Cooperatives and Condominiums located in Rego Park, Queens, New York.

Q: Who or what determines whose responsibility it is for repairs in an apartment in a co-op? Please include electrical problems, plumbing and leaks from radiators and/or air conditioners.

A: The rule of thumb is that anything outside the walls is the responsibility of the shareholder/resident. As to plumbing, if you have a faucet that is dripping and needs a washer, it would be the responsibility of the shareholder. If there is a leak from a pipe in the wall the building would be responsible. Most buildings have a list of repairs and costs. It would itemize what shareholders are responsible for and what the building is responsible for. Keeping in mind, if there is a leak from a radiator, an air conditioner, an overflow of a toilet or any other mishap, and your neighbor’s apartment is damaged, the apartment it came from is responsible. It is most important that all residents /shareholders and/or condo owners carry Home-owners Insurance (or Renters Insurance). For more information and details on insurance coverage for individuals contact your insurance agent. FNYHC will be conducting seminars on this subject. Watch the Queens Courier for future dates and places.

Q: When selling a cooperative apartment is the “Flip Tax” a selling expense and does it reduce the capital gains of the seller?

A: The standard form of contract for the sale of a cooperative apartment usually imposes any flip tax that may exist upon a seller, however, this liability can be shifted to a buyer. A flip tax is an amount of money paid to the cooperative board upon the sale of an apartment by a seller. If the responsibility to pay the flip tax isn’t shifted and rests on the seller and the cooperative board will not transfer the Proprietary Lease and stock until it is paid, than this is a “Selling Expense” within the meaning of the IRS Code (See Publication 523) and it will reduce your capital gains accordingly.

When a person sells property, a cooperative apartment or a condo, you add to your basis, all legitimate and/or “selling expenses”, as well as any improvements and/or renovations thereon and any additional costs such as commissions and recording or transfer fees that were paid when you bought and when you sold your property. This is known as the adjusted basis. Before you can figure your gain or loss on a sale, you must determine the adjusted basis of that property and deduct that amount from the selling price. If the amount realized is more than the adjusted basis, the difference is a gain, and except for any part you can exclude, is generally taxable. A “Flip Tax”, if actually paid by a seller when transferring his/her property, is a “selling expense”, and therefore increases your basis and reduces your capital gains accordingly.

Jerry Iannece, Esq., Senior Partner
Iannece & Calvacca

Q: Our Board spends an inordinate amount of time trying to resolve shareholder disputes. Our most recent dispute involves a complaint, where one shareholder is complaining that the son of a nearby shareholder is making too much noise when practicing his trumpet for the school band. What should we do?
-- Board Member, Queens

A: The Board must determine whether the dispute involves a violation of the House Rules and/or terms of the Proprietary Lease. The Board must determine whether the playing was done in the proper time framework so as not to violate the House Rules. Most House Rules prohibit instrument playing during certain hours, usually during evening and sleeping hours. If there is a House Rule violation, the Board should have Management send a letter to the offending shareholder. If the violations persist, the Board should get their attorney involved.

What if the playing doe not violate any House Rule? The Board has two options: 1) be proactive and try to have the shareholders settle their differences in a meeting with a Board volunteer(s); or 2) recommend an independent outside mediator. If no House Rule is violated it is incumbent upon the Board to maintain a neutral position. However, more and more Board's are recommending that the shareholders take their dispute to an independent mediation service. These professionally run mediations are often very successful and can lead to harmony amongst neighbors. In order to find these services you should check with your local Bar Association or check with your attorney to see what they suggest.

Geoffrey Mazel, Esq.
Hankin & Mazel, PLLC

Q: Will you have a schedule of seminars? What subjects will you be covering? Will the details of the seminars be posted in the Courier? Please advise.
-- Concerned Board Member

A: The Federation of NY Housing Co-ops and Condos is anticipating a series of seminars dealing with Insurance, (learning what Coverage your building requires). Many buildings do not have the necessary coverage and may have coverage that they do not need. There will also be seminars related to responsibilities of Board Members, Site Managers, Superintendents and all workers (union or not) in the building. Board members are responsible for Budgets, choice of vendors, complying with the rules of the building code, acceptance and rejection of potential buyers, and the general well being of the building/complex.

There will be a seminar on Tuesday, January 13, 2009. in Atlas Park, 200 Cooper Avenue, Glendale, NY at Shiro’s of Japan. (Complimentary dinner) The Federation is concerned with Health Insurance for residents/shareholders of co-ops and condos. Many people have found themselves without Health Insurance due to existing problems in our economy. Through the Federation members will be able to secure insurance at lower rates than if they had to apply individually. We are also concerned with shareholders who do not carry Home-Owners Insurance for their individual apartments. Attend this seminar for detailed information.

Q: We are a self-managed cooperative, planning on retaining the services of a management company. Is there any particular procedure which we should follow for turning over management responsibility?

A: The process of moving from selfmanagement to management by an outside company is not substantially different than when a Board of Directors changes outside management companies. The new management company will at a minimum require the following documentation:

1. Detailed maintenance roll.
2. Detailed arrears report for all shareholders/lessees.
3. Copies of all service contracts [boiler/burner, elevator, maintenance, security, electric metering, etc.].
4. Detailed payroll reports for all building staff.
5. Copies of all complete insurance policies in effect.
6. Copies of the complete monthly reports [including bank statements] for at least one (1) year.
7. All original unpaid bills, pending repairs, open correspondence & related documents.
8. Original stock book and corporate seal.
9. Original shareholder/lessee files, including proprietary leases, repair tickets, and general correspondence.
10. Building keys, drawings, plans, blueprints, alarm & door lock codes, etc.
11. Vendor list including contact & telephone numbers.
12. Corporate tax returns & financial statements.
13. Copies of all star tax applications and 1098 reports,
14. All misc. correspondence & related documents.

It is recommended that the apartment corporation’s accountants perform special services to close out the books effective of the last day of the month that the property is self-managed. Written notice should be given to all shareholders and to all vendors advising them of the turnover of management responsibilities, as well as the effective date.

Eric M. Goidel, Esq.
Borah Goldstein Altschuler Nahins & Goidel, P.C.

Q: Can a non-board member shareholder serve on a Cooperative Resale Committee? Concerned Board Member, Queens, NY

A: Whether a shareholder who is not a board member may serve on a Cooperative’s Resale Committee is governed by the Cooperative’s by-laws. If the Cooperative’s by-laws are silent as to who may serve on various committees, then the Board of Directors may determine, using their discretion, whether or not it is in the Cooperative’s best interest to have non-board members serve on the Cooperative’s Resale Committee.

There are however several considerations that both the Board and a nonboard member shareholder who is considering serving on the Resale Committee should keep in mind. First, the Cooperative’s Director’s and Officer’s insurance policy does not cover shareholders who are neither officers nor directors. Therefore, if the Coop is sued based upon the actions of the nonboard member shareholder, the insurance carrier will neither provide a defense nor indemnify the Coop for any judgment which may ultimately be obtained.

Second, the actions of the non-board member shareholder will not be “protected” in a lawsuit filed against the Coop by the Business Judgment Rule. The Business Judgment Rule is a common-law doctrine by which the courts exercise restraint and defer to good-faith decisions made by boards of directors in business settings, and rule applies to determinations of a residential cooperative board. Absent the Business Judgment Rule, a court makes its own evaluation of the Board's conduct based on a judicial standard of reasonableness.

Finally, in the event of a lawsuit filed as against the Coop, the attorney client privilege that protects communications by and between Coop board members and the Coop’s counsel may very well be breached by the inclusion of a non-board member shareholder thereby potentially making all communications with Coop counsel where the shareholder was present discoverable in a lawsuit.

Thus, while it is likely that a Coop may be able to have non-board members appointed to the Coop’s Resale Committee, it is strongly suggested that the Coop and the non-board member carefully consider the risks of such an appointment which may likely outweigh the benefits of such an appointment.

By Albert F. Pennisi of the law firm of Pennisi, Daniels & Norelli, LLP, a law firm that represents Cooperatives and Condominiums located in Rego Park, Queens, New York

Q: I read about the seminar in October in the Courier and I was sorry to have missed it. Are there any seminars being planned in the near future? If there are, what are the subjects to be covered and how can I get the details as to where it will be and when?
-- Future Board Member, Queens, NY
Co-op owner in Queens

A: There will be a seminar on Tuesday, January 13th, 2009. The topics will include Health Insurance, energy, Local Law #11, exterminator (bed bugs) and greening. Other topics covered will be Mortgages, Legal Issues, pollution coverage for your building and the current crisis in the insurance industry. Professionals of Co-ops and Condos will answer questions on all subjects that pertain to your buildings.

Q: Is it acceptable that the Board of Directors ask the residents of a co-op to contribute to a Holiday Fund for the employees of the building?
-- Board of Director Queens, NY

A: Many buildings have started this practice. Usually, a dollar amount is determined by the Board determined by the amount of people employed by the building. The division of the money is also determined by the Board.

The reason for this fund is that there are some employees that do not have a relationship with the residents but are very important to the operation of the building.

Porters maintain the compactor (garbage), are responsible for the upkeep of the hallways (cleaning floors, mirrors, windows) and the cleanliness of the public areas. The Superintendent is responsible for the general oversee of the building. He monitors the heating system, the lighting of the building and the general maintenance of the entire building.

A HAPPY HOLIDAY SEASON TO ALL

Gregory Carlson,
Executive Director
Federation of NY Coops & Condos

Q: What is a Cooperative’s Responsibility for Eradication of Bedbug Infestation?

A: After practically disappearing since the early 1900’s, bedbugs are staging a comeback in apartments, hotels and homes throughout the United States. However, since 2004, there have only been a few reported cases in New York directly ruling on the issue of bedbugs and none of these cases deal directly with cooperatives.

Responsibility for eradication of bedbug infestation in a cooperative should generally be determined by the provisions of the proprietary lease. The proprietary lease makes a shareholder responsible to keep the interior of the apartment in good repair while the coop is responsible for keeping the building in good repair. Therefore, a shareholder should be responsible for remediating bedbug infestation within his own apartment. There is one exception, namely, the warranty of habitability which is a warranty read into every residential lease, including coop proprietary leases. The warranty of habitability requires that an apartment be fit for human habitation and free of dangerous conditions and may obligate a coop to remediate infestation unless the shareholder’s personal property is demonstrably the source of the infestation. If the infestation is limited to one apartment, chances are that the shareholder brought the bedbugs into the apartment and the warranty of habitability would be inapplicable because the law provides that if the condition at issue is caused by the tenant, the warranty is not breached. However, where multiple apartments are infested and it is difficult to identify the source of the infestation, remediation may become a Board responsibility.

By Albert F. Pennisi of the law firm of Pennisi, Daniels & Norelli, LLP, a law firm that represents Cooperatives and Condominiums located in Rego Park, Queens, New York

Q: We have video cameras at all the entrances of our building. Where would we have cameras installed and other devices to insure the safety inside and the surrounding area of the building?
-- Concerned Board of Director, Queens

A: You should have cameras at the staircases leading to the roof. Also, a fire dept approved exit device (panic bar) as a no re-entry bar with an alarm should be on installed on all the doors leading to the roof. These devices can be equipped with a timer so that the signaling device will ring for certain length of time. This is to allow the residents time to call an emergency number (Superintendent, doorman or the police).

Please be sure that signs are posted in all areas advising that these alarms and cameras are in use.

Cameras on each floor would monitor strangers in the building (delivery people, unauthorized people, children playing in the hallways, persons vandalizing, etc.). You would have evidence of all activities taking place in your public areas. Elevators should be equipped with cameras. Laundry rooms, entrances to the garage, playgrounds, mail rooms and all other public areas should also be monitored. All of this equipment must be installed by a licensed security company. Motion detectors and motion lights can be used in certain areas.

Saul Belsky, President
Lockdoctor, Licensed & Bonded Security Company

Q: My niece is visiting from Israel and staying in my apartment (a co-op) with my permission. I preferred that my apartment not be unoccupied since I am in Florida for the winter and will return in late April. I received a letter from the Management company advising me that she had to leave the building within sixty days or they will evict her. The building does not allow sub-lets. I am not subletting the apartment. She is my guest. Please advise.
-- A Troubled Shareholder
Queens, NY

A: The Board of Directors cannot evict her. Send a letter to them advising them of her visit and that you are paying the maintenance. You are can have a guest in your apartment while you are not there as long as the guest respects the rules of the building.

Our coop is considering imposing a FLIP TAX. Could you email me info regarding the pros and cons of such an action?
-- Board Member, Brooklyn, NY

Pro Flip Taxes

To institute a flip tax for a building or complex, there must be a vote of the shareholders. Usually, it requires a positive vote of two-thirds of the shares.

The flip tax is charged when an apartment is sold. The proceeds are generally used for major improvements—(e,g, elevators, roofs0 - not for the day-to-day operations of the building There is a great benefit for having a flip tax. It is a fund source without having to go for a loan, having an assessment or raising maintenance.

Also, a flip tax is used to maintain and upgrade the building. The flip tax is not figured in as a regular budgetary item in the operating budget. The flip tax formula you use must be specific, so there is no question as to how it is calculated. The particulars of the flip tax should be included in the information given to a prospective buyer. The recommended formula could be a specific dollar amount per share. For more details please call the Hot Line at FNYHC.

Gregory Carlson,
Executive Director
Federation of NY Coops & Condos

Q: I am on the Board of Directors of a Co-op. Electricity is included in the maintenance. Since the cost of electricity has gone up many shareholders have asked if we could have sub-metering so that each apartment would pay for their own electricity. What do we have to do to get started?
-- Board of Directors, Queens, NY

A: New York State Public Service Commission (PSC) requires that there be a vote of shareholders to approve the conversion from master metering to sub-metering of electricity. The PSC requires that a percentage of those canvassed vote in favor of the conversion to sub-metering. There should be meetings with shareholders explaining the process. Professionals in the sub-metering field should be at these meetings to explain all that it entails, e.g. the installation of the individual meters, the reading of the meters and the maintenance of the meters. How the cost of the electricity of the common areas would be allocated to shareholders must be addressed. Most by-laws require a quorum to be present at meetings when there is a vote [some Co-ops allow proxy voting].

It is extremely important that an attorney review BOTH your by-laws and proprietary lease for the requirements of your offering plan before having a shareholder vote to approve the change to sub-metering.

Needless to say, converting to sub-metering is an extremely important decision and must be done according to all the rules and regulations of the PSC. For more detailed information please contact your Attorney.

Geoffrey Mazel, Esq.
Hankin & Mazel, PLLC

Q: What does the Federation do?

A: The Federation of NY Housing Co-ops and Condos advocates for Coops and Condos. As an example, for many years Co-ops were treated as rental properties and were taxed at the rate of Landlords. Through the efforts of the FNYHC that was changed. Co-ops and Condos are now in a different tax bracket. In addition, shareholders of Co-ops and Condos now receive the Real Estate Tax abatement. The only condition of this rebate is that this be the prime residence of the shareholder. Co-ops and Condos now receive the STAR rebate(also, must be your prime residence), the Veterans tax exemption and, if qualified, the Senior Citizen Maintenance Increase Exemption. For more information regarding this please call our Hot Line.

A newsletter is published periodically advising the Co-ops and Condos of the changes in rules and laws that affect our buildings.

Seminars, conducted by professionals in all fields, are held throughout the year. The seminars are held in neighborhoods throughout the city. The subjects of the seminars that we are currently planning include Energy (Heating, Air Conditioning and Electricity), Insurance (Individual and Building), Sub-Metering of Electricity, Budgets, Responsibility of Boards, the Do’s and Don’ts of interviewing prospective buyers (the questions you can and cannot ask), compliance of Local Law 11., Maintenance of the Building, relationship with Unions, the need for Certiorari attorneys, the advantage of a Flip Tax and any other subjects that affect the Co-op and Condo world.

For more details of the advantages of supporting the FNYHC (The Federation) please contact us. Our phone number and e-mail address are listed below. Visit our website for notices of the current seminars. Suggestions for future seminars are welcome. FNYHC is a non profit organization.

Q: What can be done about a controversial or disruptive board member?
-- Board President,
Bayside Queens

A: A distinction must be drawn between a board member who challenges other board members at board meetings versus a board member who is merely disruptive for disruption’s sake. In the former case, that board member may serve a useful purpose as individuals with different views may assist a board acting as a deliberative body in arriving at reasoned decisions. The latter situation threatens the very viability of a cooperative board of directors. In such a case , the board should initially meet with the board member, express their dissatisfaction and how the conduct of that board member prevents the proper function of the board of directors. If the matter is not resolved, then the next step would be to remove that board member from special positions from that board such as officer positions and/or committee positions. In the most egregious of situations, mechanisms exist in the By-Laws of virtually all cooperative corporations whereby shareholders may remove a director for cause. Such a vote typically requires a supermajority vote of the shareholders and special rules apply to removal where a corporation has cumulative voting. Perhaps the greatest equalizer is the fact that at some point that board member has to stand for re-election. Many shareholders give proxies to incumbent board members and the judicious decision of the board not to support the disruptive board member at the next election will often resolve the problem by that individual not being re-elected.

Eric M. Goidel, Esq.
Borah Goldstein Altschuler Nahins & Goidel, P.C.

Q: A Tenant-Shareholder has a dog that is vicious or dangerous. What laws in the City of New York provides for the control or removal of the dog?
-- Board Member,
Rego Park Queens

A: The New York City Health Code provides, in part, as follows:

• A dog may not be in any public place or an open or unfenced area unless it is on a leash, with a collar that has a valid metal tag (license).
• A dog that is vicious or dangerous is one which menaces, threatens, attacks or bites a person.
• A report may be made to the City of New York Department of Health, against the owner of the dog.

The Department of Health may require the owner of the dog to make the dog available for examination. If the Department of Health examines the dog and finds the dog to be vicious or dangerous it may order:

1. The animal to be surrendered for the purpose of humane destruction;
2. The animal to be permanently removed from the City;
3. The animal to be muzzled whenever the animal is in a public place or in any open or unfenced area abutting on a public place;
4. Such other action as the Department deems sufficient to insure control of the animal and protection of the public.

By Albert F. Pennisi of the law firm of Pennisi, Daniels & Norelli, LLP, a law firm that represents Cooperatives and Condominiums located in Rego Park, Queens, New York

Q: I live in a co-op building and all shareholders recently received a letter asking to provide Management with a copy of the apartment's key. They allege that they need everybody's keys in case of an emergency. They are also asking for emergency contact phone numbers. I have spoken with some of the people who live in the building and all of them are upset and are saying they will not submit their apartments' keys. I'm particularly upset because in the letter Management says that "if you decide not to turn in your keys, if there is an emergency and we need to break into your apartment, you will be responsible to pay for the Locksmith's labor plus $100 administrative fee."
-- Shareholder in Queens

A: They are well within the law. Under the NYS Multiple Dwelling law Section 51-c –The landlord (Cooperative) has the right to request a duplicate key which must be in a secure location.

Gregory Carlson,
Executive Director
New York Affordable Housing Management Association NYAHMA

Q: I do not have anything in my apartment that is very valuable. Why do I need home owners insurance?
-- Co-op owner in Queens

A: Your furnishings (clothing, personal belongings, etc.) are not covered by the building’s insurance. If there should be a fire or water damage in your apartment and there is damage to your neighbor as a result of this, you would be responsible for the cost of repairs to their apartment. Also, if there should be a problem in your neighbor’s apartment and you incur losses, your insurance would protect you. There are many other advantages to Home Owners insurance and you should consult an agent for more information