New Year, New Deal

Guide your building through 2002

We all know how it goes. All year long, you let things slide a little here and there–an extra handful of chips here, putting off changing your oil there–until by the time the New Year rolls around, you’re battling ten extra pounds and your engine sounds like it’s full of dried peas. Swear all the solemn oaths you want… it’s hard to make New Year’s resolutions stick.

It pays to parlay New Year enthusiasm into action, however. To that end, The Cooperator has compiled a short list of ways in which your board can tie up loose legal ends, improve relations with shareholder/owners, and generally run a tighter ship in 2002. Some are suggestions for one-time fixes, while others should become routine business. All are intended to help you and your board chart a smooth course through the year ahead.

This is the perfect time to look over your building’s governing documents to make sure they’re up-to-date and don’t contain any irrelevant or outdated information. Easy as it is to take an "if it ain’t broke, don’t fix it" attitude toward paperwork that may have been on file for decades, times–and buildings–change, and there may be a lot of outmoded language in your documents that needs to be either revised or discarded.

It’s also important for a board to turn a critical eye on the lease documents being issued to shareholders. According to Beth Markowitz of Manhattan’s Merlot Management, many of the proprietary leases circulating now were drafted in the mid-80s and contain clauses and stipulations that just don’t apply anymore. "It generally takes 51 percent or two-thirds of the outstanding shares to vote to change a lease, and some buildings have great turnout, while with others it’s a struggle. A board should decide if working on the lease is a priority on their agenda," says Markowitz. Managing agents and legal counsel can help bring lease documents into the 21st Century.

Another document that may benefit from a New Year’s dusting is your building’s House Rules. House Rules outline all the minutiae that shareholders’ leases don’t, and are a very important reference for residents and directors alike. House Rules are also somewhat more flexible than leases, and benefit more from close scrutiny once a year. As Markowitz explains, "I encourage all boards to constantly address their House Rules. [Boards] have the purview to change the rules if they’ve become antiquated–like the ones that talk about incinerators, for example. The rules can change to deal with new sublet policies, move-in/move-out rules, and pets. The board has the right to amend, abolish, or change any of that."

And what if your building doesn’t have an official House Rules document? The beginning of a New Year is a good time to construct one. This need not be difficult. Markowitz points out that most managing agents handle more than one building, and that it’s easy for a rule-less building to borrow the House Rules of another and simply add or delete elements to suit their community’s particular needs.

Insurance policies need to be evaluated each year to see if they offer adequate coverage. It’s a good idea to include your building’s insurance policy–and the policies of your residents–in the parade of paperwork for your board to review.

Coverage that was perfectly adequate 15 or 20 years ago may be woefully inadequate by today’s standards, says Rick Insley of Liberty Mutual in Manhattan. "You’ve got to appraise your inventory and figure your replacement costs in today’s dollars," he says. Bob Owens, president of the insurance brokerage firm The Owens Group, Ltd. in Englewood Clifs, New Jersey, puts an even finer point on it: "These days–especially after September 11th–boards are insisting that every [shareholder/owner] carries their own insurance, and that coverage is adequate."

Owens estimates that better than half of all New York City co-op and condo dwellers don’t carry homeowners insurance, counting on their building’s umbrella policy to cover them in case of crisis. This needs to change, and according to Owens, "Boards should be going into 2002 planning to make it mandatory for unit owners and shareholders to carry sufficient coverage to rebuild in a case of massive loss."

Boards should also turn a critical eye on their general building coverage, says Owens, and revamp their policies to reflect the new sociopolitical climate in which we live. This need not be difficult or even terrifically expensive. Says Owens, "You can talk to your agent about increasing your limit. Get a new appraisal–outside experts will tell you what’s reasonable. Premiums have been declining for years, and people waste a lot of time worrying about price and not enough on the actual coverage. Insurance makes up only about one or two percent of a building’s budget–it’s not a big cost, but it’s crucial if something goes wrong. Post 9/11, boards are going to have to insist on more coverage."

Like insurance policies, service contracts lay low from one year to the next, often "taking on a life of their own," according to Ted Procas, board chairman of the Association of Riverdale Cooperatives and executive board member of the Council of New York Cooperatives and Condominiums (CNYC). "It’s important for boards to regularly re-bid their service contracts," says Procas. When a contract is automatically renewed every year without re-bidding, providers will often tack on small increases until a building is paying far more than market value for services like laundry and health clubs. As Procas points out, "If you ignore your contracts and leave the prices up to your vendors, they can run away from you. You can be taken advantage of."

Contract expiration dates vary, but the New Year isn’t a bad time to review things and draw up a game plan that includes re-negotiation and possibly re-bidding. In the case of your independent contractors, a little attention to fine print can save your building money.

Of course, you can’t just plan the year ahead and leave it at that. Your building will outlast its current board, so this may be the year to mount a full-out, basement-to-attic assessment of your property’s physical condition, as well as putting together a long-term plan for capital investments and budgeting.

By projecting needs, costs, and funding into the next five years or so, your board can not only construct a better picture of the state of the building for itself, but can also prepare future boards for what is to come. A heart-to-heart with your building’s financial team can shed light on the importance of planning and careful consideration of your building’s financial future in both the short- and long-term.

Aside from all the paperwork and high-level conferencing that your board should be immersed in at the beginning of a new year, there’s another element of the co-op/condo equation that definitely warrants some attention: the human element. Owners and shareholders regularly list lack of communication between residents and board members among their top co-op/condo-living peeves. Your board can do its part to improve relations with non-board residents in the coming year by making yourselves available to address questions, and by distributing information on upcoming decisions or projects to all the residents in your building. A building newsletter is one popular way to disseminate information among residents, or your board might consider taking advantage of modern technology and establish a building Web site.

David Muelkin, vice president of New Jersey real estate consulting firm ROA Hutton, LLC, is partial to the use of new technology to keep people connected. His firm specializes in co-op conversions, and as part of the process the company establishes a Web site for each building featuring information and a forum for community issues and discussion. According to Muelkin, "More and more people are using e-mail to communicate, so it’s very convenient in our buildings to be able to just type a few keystrokes and contact several dozen people."

Of course, all the resolutions in the world, no matter how earnest, are impossible to implement if a board can’t organize itself and its meetings. The new year is a good time to review how your board conducts business. Anyone who’s served on a co-op or condo board can tell yarns about interminable, unfocused meetings that accomplished nothing. According to Howard Schechter, a partner in Manhattan law firm Schechter & Brucker, PC, "Every board has its own distinct group personality, and it’s important to fit the format of the meeting to the personality of the group."

Pulling things together may be as simple as a change of scenery. While some boards function flawlessly meeting in a board member’s apartment, others benefit from something a bit more formal. "Meetings held in a more business-like setting, like an office or around a table, tend to be more focused than those held in a more informal environment," says Mark Moskowitz, president of the residential management firm The Argo Corporation in Manhattan. He goes on to say that many management companies are happy to provide meeting space in which their boards can meet.

And speaking of focus… "The main problem with most board meetings is lack of focus," says Schechter. "The most effective meetings work off an agenda, with the chairperson moving the agenda forward, encouraging discussion but not allowing digressions." Schecter also points out the importance of mature, professional discourse during board meetings. "Successful boards have members who put aside their personal feelings and treat each other with respect–even if they disagree."

Successful boards also do not exist in a vacuum. Along with a businesslike outlook, another factor that can vastly improve how your board functions is a commitment from board members themselves to stay informed about the issues affecting the co-op/condo community. Particularly now, when the economic and real estate landscape is so uncertain, staying on top of the latest news and developments is vital.

Sharing information with your fellow directors is part of this. According to Ken Lovett, president of John B. Lovett & Associates Ltd., a property management firm in College Point, New York, "Board members need to communicate with each other between meetings in order to clarify issues, and the managing agent should communicate with the board president at least a week before the meeting to discuss the topics that will be brought up."

One way to keep abreast of issues and changes in the real estate scene is to read publications that make it their business to explore and report stories of importance to shareholders and unit owners. The Internet has also become an invaluable tool, with groups like CNYC, the New York Association of Real Estate Managers (NYARM), the Superintendents’ Club of New York, and the Real Estate Board of New York (REBNY) all maintaining updated Web sites packed with helpful information and contacts designed to make your job easier.

With a new year comes new challenges, new things to learn, and new decisions to be made. With some renewed enthusiasm and commitment to your building and your job as a board member–and the help of a dedicated team of fellow directors and professionals–2002 can be a landmark year for any co-op or condo building.

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