Changing the Rules
Altering Bylaws in Co-ops and Condos
When you're on the board of a co-op or condo building, sometimes it can feel like you need a law degree to understand all of the paperwork that gets thrown at you. Depending on where you live, there are bylaws and proprietary leases and house rules and everything in between. And like any thriving growing community, sometimes rules and laws need to change with the times. But how often can these documents be changed? Who changes them? Do the owners or shareholders have any say in these changes?Know the Rules
First, while they sound similar, it's important to understand the difference between some of these documents. For the most part, it all comes down to whether your place of residence is a condominium or a cooperative.
According to Neil Garfinkel, an attorney with Abrams Garfinkel Margolis Bergson, LLP in Manhattan, bylaws in a co-op dictate how the corporation operates-- in that regard, they're very different from the bylaws in a condominium. The documents that tell the people in a co-op what they can and can't do in respect to living in the building are the house rules and the proprietary lease.
"However," says Garfinkel, "the bylaws in a condominium are the rules and regulation the condo owners are governed by; they are set up to protect the interest of the owners."
The condominium bylaws are a self-governing document for the association. This covers board member qualifications and the direction of the board of directors, including how it administers policies according to the bylaws and how it oversees the maintenance and administration of the association. The bylaws will also cover meetings, voting, proxies, budget, assessments, including special assessments, insurance coverage, and restrictions on the use of the units and the common areas. For example, condominium bylaws will state whether or not unit owners can own pets; but the cooperative owner's proprietary lease will state the rules of pet ownership.Changing the Rules
Now that you have graduated from Bylaws 101, what are some legitimate reasons to change a bylaw or set of bylaws? While most building bylaws are written thoughtfully and with the entire building community in mind, the fact remains that at some point, most buildings find it necessary to review their bylaws and change them if they're obsolete, unenforceable, or universally disliked.
"There are some common reasons for changing bylaws," says Paul Herman, managing director of Rose Associates, a management consulting firm in New York. "In a cooperative, you may want to change the maintenance requirements, or the board of directors requirements, or the flip tax (for transferring a unit). In a condo, the association can change bylaws to address such issues as a change in voting procedures, special assessments or the term of the board.
If several provisions of the bylaws are being considered for amendment, perhaps it's time to review the entire document, rather than approaching it piecemeal. According to attorney Robert Meisner, a member of the College of Community Association Lawyers and adjunct professor in community association law at Michigan State University Law School and Cooley Law School, your board should consider how long it's been since the bylaws were created, and how many laws have been passed or changed since then. He also suggests that you ask the following questions before deciding to change your bylaws:
- Would you like to improve unit resale marketability and real estate appreciation, and strengthen the building against potential legal challenges and financial liabilities that could be thwarted through good document provisions?
- Do you have financial difficulties caused by delinquent assessments, inadequate budget or reserves, or non-recoverable attorney fees incurred in pursuing bylaw infractions, and bylaws that do not seem to provide any remedies or a roadmap for relief?
- Do your bylaw provisions seem to be contrary to public policy, such as prohibiting the flying of the American flag, prohibiting family day care homes, allowing transient tenants, or discriminating against children or single people?
- Do you have problems such as parking, pet issues including waste and leashes, common elements not being properly maintained, satellites and antennas indiscriminately erected, and bylaws that do not provide remedies, direction or relief?
- Do you have trouble getting residents and shareholders to attend meetings, satisfying the quorum requirements, passing votes on important issues, getting people to volunteer for (or stay on) the board?
- Do you have documents that lack reasonable notice or quorum requirements, or lack the protective indemnification, limitation of director and officer liability, and the director and officer insurance coverage provisions?
- Are there clear procedures in your bylaws for dealing with insurance proceeds, building funds, eminent domain and other factors that serve to protect the owners' collective investment?
- Do your bylaws contain outdated provisions regarding the sponsor's rights, and references to governmental agencies or governmental documents which may have been abolished, or an unenforceable and potentially discriminatory right of first refusal unit resale provision?
Flexible as they can be, however, individual bylaws already written can't just be changed on a whim. For example, in a recent Washington Post column, attorney Benny L. Kass, explains that if renting is already permitted in a building's bylaws, the board cannot pass a rule that prohibits owners from leasing out their units.
"However," says Kass, "the board can impose reasonable restrictions. For example, the board could require that all owners and tenants sign an addendum to their leases stating that the tenant has been provided a copy of the association documents and that the tenant agrees to abide by those documents.
"The board could also require that the landlord and tenant acknowledge that the board of directors can take legal action against a tenant for violations of the association legal documents," Kass continues, "Or the board could require that the landlord and tenant agree that if the landlord is not paying the condominium fee, the tenant would upon demand pay his rent directly to the association, instead of to the landlord."The Residents' Say
Once a bylaw needs to be changed, a consensus needs to held and a certain percentage of shareholders must agree on the change to make it official. "The bylaws are going to set forth what kind of consensus you need," says Garfinkel. "Generally, it's a two-thirds vote. In cooperatives, voting can be done two different ways: it can be based on the number of shares that you own or it can be based on the number of unit owners, but again this information will already be in the bylaws."
Typically the board of directors initiates the process of a bylaw change, but if you are a shareholder or individual who wants to express a concern, you can attend the annual meeting, wave your flag and start a change at the grassroots level. If others feel the same way you do, you can also gather a group of shareholders together and call a special meeting.
If the board of directors initiates a bylaw change, it will hold an informational meeting or circulate the proposal to the shareholders--again, it depends on what the bylaws already say they must do. Anyone interested in attending the special meeting to voice his approval or disapproval of the change can do so. Some associations then have a vote at the annual meeting, while others call a special meeting solely to vote on the proposed amendment.
One such example of how bylaws can be changed occurred in a luxury condo building on Manhattan's Upper East Side. A prospective purchaser had a criminal record--he was convicted of a crime that involved a gun. Since the board had the right of first refusal, the board rejected the purchaser and received a vote from two-thirds of the unit owners that they could in the future reject purchasers convicted of gun-related crimes. Although this was a very unusual case, it shows how the condominium owners can change bylaws.
"Typically we advise our board that if they are going to change something and it will be considered controversial, we would strongly urge the board to go to the shareholders and not rely solely on the powers they were given," says Herman.
"Bylaws generally don't change all that much though," says Garfinkel. "They are pretty standard from corporation to corporation and it's more likely that they will review a proprietary lease in a cooperative."
"Many of these problems can be protected against, avoided and/or significantly reduced through the adoption of the proper bylaw amendments," says Meisner.
"There is an art to getting these documents approved, but it can be done through careful planning and board dedication."Lisa Iannucci is a freelance writer living in Poughkeepsie, New York.