Q&A: Unexplained Maintenance Increases
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Q I’ve lived in my Manhattan co-op for nearly 20 years. We elected a new board president a little over a year ago, and in that short time our board has raised the monthly maintenance three times. Can a board just keep raising our maintenance without consulting shareholders? What protects us as shareholders? Shouldn’t the shareholder be given a certain amount of time and prior notice before implementing these increases?
— Manhattan Shareholder
A “In most cooperatives, the board of directors is authorized to set and increase, from time-to-time, maintenance charges which in its sole judgment are necessary to meet the corporation’s cash requirements and to fund reserves,” states attorney Stanley M. Kaufman of the Manhattan-based law firm of Kaufman Friedman Plotnicki & Grun, LLP. However, the first thing that you should do is review your co-op’s bylaws and proprietary lease because proprietary leases vary, and some contain limitations on a board’s right to increase maintenance charges, add services or fund reserves resulting in an increase in maintenance beyond a certain percentage. We represent one co-op whose lease contains an express limitation upon the board’s power to significantly change or add new services if doing so will result in a substantial maintenance increase.
“Typically, however, the board’s right to establish the co-op’s annual cash requirements and set maintenance levels is a matter within the realm of the board’s business judgment. As long as the board is acting for proper corporate purposes, in accordance with any lease or bylaw requirements, and not in bad faith, its decision cannot be successfully challenged.
“It also should be noted that in creating a balanced budget, only a small percentage of the co-op’s expenses are discretionary. The bulk of the budget usually consists of expenses that are largely beyond the board’s control (and often increasing), such as mortgage interest, labor costs, taxes and utilities. If you believe that your co-op president and current board are reckless spenders, of course, you have the power of the ballot. At your next annual meeting, you can try to vote the rascals out. In addition, as a shareholder, you have certain statutory rights (and probably rights under the proprietary lease) to inspect certain of the corporation’s financial records.
“In answer to your second question regarding notice of maintenance increases, unless the your proprietary lease or bylaws contains such a notice requirement, which would be unusual, there is nothing in the law that requires any kind of notice or warning to shareholders before maintenance is increased.”
