It happens in business, government, and industry every day: employees learn the rules of a new job, and before long they know those rules so well, they start going around them or taking short cuts. Rarely is this done with malicious intent. More often, it is simply a matter of knowing something so well that the rules fade into the background and solving the problem at hand becomes the priority.
The same can happen with co-op and condo boards who may find themselves straying from the letter and spirit of the rules that govern the entity over which they have been given authority.
In other instances, the lapse in governing “by the book” could come from the fact that new members may or may not have fully familiarized themselves with those all-important documents. In these cases, ignorance rarely if ever leads to long-term bliss. Sooner or later, boards that fail to lead according to their co-op, condo or homeowner’s association governing documents will find themselves in a bind—the kind that may end up involving litigation.
Letter of the Law
For co-ops, condominiums and homeowner’s associations, there are guidelines available to help a board efficiently, effectively, and legally lead their communities. For condos, those documents include first and foremost, the master deed, says Dennis Estis, a partner with the law firm of Greenbaum, Rowe, Smith & Davis LLP in Woodbridge, New Jersey. “Second, there are the bylaws. Third, any rules or regulations adopted over the years and fourth, the certificate of incorporation.” For co-ops, “First is the declaration, second is the shareholder’s agreement, third is the lease, and fourth is the set of bylaws,” Estis says.
For an HOA, these governing documents would be the declaration and by-laws. “The parts that the board really control are small, like the roadway, swimming pool or retention pond,” says Estis. “Other than that, every homeowner has their own home.”
It helps for board members to have a firm grasp of those elemental documents. “I have found over the years that many board members have no idea what documents they should be following,” Estis says.
Where the Wheels Fall Off
Lapses can be intentional or unintentional—some people break the rules by choice, others by omission, and others simply by accident. Steven Troup, a partner with the law firm of Tarter Krinsky & Drogin in Manhattan, says, “It is not unusual for a board to forget what their governing documents actually provide and create a precedent that I’ve seen followed incorrectly for many years.” Troup says boards can also find existing rules as simply burdensome. “Sometimes a board simply chooses not to follow the governing documents on issues that the board deems to be inconvenient or disfavored.”
The temptation to cut corners may be so gradual that some boards may not even notice when they're doing so. Michael Cervelli, founder and CEO of Cervelli Management based in North Bergen, New Jersey, adds, “Oftentimes, especially when things are going well, no one ever shows up to the meetings and human beings become complacent. They take short cuts and before they know it, the ship is steering off course.”
In other instances, problems can arise due to more formidable reasons. “People can get into a position of authority and start to just do whatever they want,” Cervelli says. Estis agrees. “Sometimes board members have been in office so long that no one has challenged them,” he says. “They get used to following their own rules and develop a sense of entitlement to the position they hold.”
While it seems that others involved in the management of a co-op, condo or HOA community should step in to put the board back on track, there are times when that safeguard fails. For example, some communities may be represented by counsel who have served them for so long that they do not wish to rock the boat, says Estis. “They may not want to risk being replaced by someone who is more amenable to following the board’s interpretations of the situation.”
The End Result of Laxness
As the saying goes, all good things must—or at least usually—come to an end. The avoidance or simple ignorance of the rules and how a system of leadership should function can not continue to stray indefinitely. There comes a time when trouble begins to arise from those practices, either from external sources or from residents who may disagree with the way things are being run. “What I have found is there will eventually come a point in time where the board may find themselves in a particular situation because they have been interpreting documents one way but then, when they find it’s to their advantage to rule another way, they find that they can’t without throwing out the ways they’ve done things in the past,” says Estis. The lax interpretation of the rules that served them well in the past may come back to bite them when a new, perhaps more accurate reading of a certain rule may better solve a new problem or issue that has arisen.
It can be a difficult rut to emerge from, primarily because that precedent they have established in doing the “wrong” can eventually evolve to represent the “right” thing. “Courts, especially outside of Manhattan, have ruled that notwithstanding what the documents say, if a co-op or condo has done something consistently for many years, where owners come to rely on the incorrect policy, the court will not overturn the particular policy,” says Troup. That can be especially problematic when an attempt is made to get back on track, only to find the hole that has been dug is far deeper than first imagined.
In many instances, problems arise because board members were simply trying to go easy on their shareholders or unit owners. Estis cites the example of boards that try to keep monthly costs down for residents, a practice that often means they are not putting enough aside for the capital fund or for unplanned expenses. When it comes time for a new roof or the replacement of a boiler that has gone bad, there are not enough funds at hand to cover the cost. The board may have been charging residents $300 a month for the last six years, but that sudden, out-of-nowhere expense is going to require a five-figure assessment. “This is very damaging to people who don’t have tens of thousands of dollars on hand,” says Estis. It’s not that different from municipalities, he adds, where a mayor running for re-election may not want to raise taxes only to find later that those taxes need to be doubled the next year to get a new sewer line built.
The fast and loose approach can even lead to damage of the building systems themselves. Troup cites an example of a small co-op with very informal governance. Shareholders had made significant alterations to their respective apartments without building plans or Department of Building permits or even board approval. No one, including the board, said anything to stop it.
“Everyone did what he or she wanted to do regardless of the governing documents,” Troup says. This went on until the building systems had become severely compromised and serious safety issues arose. Soon after this occurred, the building “cleaned house” in order to create uniform policies and standards and the board received counseling and guidance on the necessity of maintaining and enforcing these policies.
Pets can be another sore spot when it comes to loose management, says Cervelli. It is a problem that can seem small—what’s one dog in a supposedly pet-free building? But, with more people than ever treating their pets as four-legged members of the family, these issues can quickly escalate. “They may have had a rule in place where there’s a no-pet policy,” he says. “Someone decided that now that they’re on the board, they want to allow pets so they start allowing them. Someone else decides they don’t want them or someone else in the building may have allergies and it becomes a quality-of-life issue, and one of potential illness. In the meantime, people have gotten attached to their pets.” Disagreements like these can end up in court with all parties involved no doubt wishing the rules had never been bent.
Finding the Solution
What can be done to mitigate these problems? The best approach is, of course, to not veer off track in the first place and ensure that each and every board member is familiar with the rules and regulations of the building as well as their role in enforcing them. “Read the bylaws, read the rules,” says Cervelli. “Do it. It saves time, every time. Don’t take short cuts. Familiarize yourself with what you can or can’t do. If you don’t know, then follow up with your attorney the next day.”
If people begin to stray, managers can step in and try to gently coax them back to the center. “If the manager has a good relationship with their board, they’re far better off saying, in a diplomatic way, this is what the bylaws say and this is how we have to do it,” says Estis.
If things do not get better or board members are unresponsive, it may be necessary for unit owners or shareholders to get involved. “If things don’t seem kosher or don’t feel right, have discussions,” says Cervelli. “Read the bylaws. Consult an attorney. You can fire your board but you have to be ready to step in. I’ve seen it happen.”
That process can be an involved one. “If the board is non-responsive to resident complaints and simply won’t do what the governing documents require, through inattention, self-interest or otherwise, the shareholders or unit owners may petition the board for a special meeting to remove the board and vote to bring in a new board which hopefully will take steps to right the ship,” says Troup.
He adds, “As a last resort, shareholders or unit owners concerned about material violations of governing documents and/or the law—such as building and fire codes—may commence a lawsuit to obtain judicial relief.”
Finding a solution through litigation can be expensive. Individuals who wish to pursue a case more often than not need to find others willing to support that approach as well, simply to ease the cost. “If there are 250 people in your building and you are the only one willing to put the board to the test, everyone in the building will benefit if you win, but you won’t be able to get your $10,000 back. You can’t fund this yourself. You need neighbors willing to put up funds themselves,” says Estis.
Ultimately, perhaps the best way to bring about the desired results is to do it from the inside—by joining the board. “The best way to make change happen is to get on the board,” says Cervelli. “Get on a committee. I don’t know anybody who wouldn’t welcome someone saying that they want to help and shoulder some of the burden.”
That is an important point to remember: being a board member can be a lot of responsibility, a commitment that could feel overwhelming at times. When rules are bent or broken, it may be a sign that these volunteers just need a helping hand, one that can help guide the ship and shoulder some of that responsibility. There's no doubt that when that happens, everyone benefits.
Elizabeth Lent is a frequent contributor to The Cooperator.