Q&A: Renovation Fee Woes

Q I live in a co-op in Manhattan and am planning to renovate my bathroom. My managing agent has informed me that I must pay a $500 fee to file my application for the renovation, which seems unusual. The renovation is simple—to replace tile and install a new toilet and sink. There is no structural work being performed, and there are no architect’s plans. In addition, the co-op wants to hold a check of $6,000 in case of damages, which seems very high. Finally, the managing agent who owns remaining unsold shares sits on the coop board which seems to be a conflict of interest and unethical. My questions are: 1) Is it typical that a fee is imposed by the managing agent, and if so is $500 typical? 2) Is this $6,000 for damages a typical amount? 3) Is it permissible by law and/or is it a conflict of interest for a non-owner managing agent (who owns unsold shares) to sit on the board?

—Manhattan Shareholder

A “Generally, proprietary leases provide that alterations are subject to the approval of the board of directors,” says Dennis H. Greenstein, Esq., a partner with the New York office of Seyfarth Shaw LLP. “Typically common, most buildings have an alteration policy established by the board which includes a requirement to have a shareholder sign an alteration agreement.

“The alteration agreement provides for, among other things, insurance coverage to be purchased and maintained by the shareholder during the period of the alteration, the workdays and hours, and indemnity, and payment of an administrative fee and security deposit. While the writer may feel that the work being performed does not warrant the payment of such security deposit, it is typically part of the general procedure and policy of the board. Further, the managing agent generally receives a fee for processing the alteration application and papers.

“Board members have a fiduciary obligation to protect the building and its residents from any damages and claims. For example, plumbing work in an apartment, however simple, could result in damage to the building and/or other apartments. The board is required to respond to all alteration applications in a uniform manner, and to take such steps and policies it deems necessary and appropriate. However, a board may require a shareholder to submit specifications and plans, provide a larger security deposit or differ in the deadline for completing the alterations. These differences may be based upon the proposed scope of work to the apartment.

Lastly, the letter-writer asks if the managing agent sitting on board is a conflict. While wearing three hats may more likely lead to a conflict, sitting on the board, managing the property and owning unsold shares in and of itself is not a conflict. The managing agent in his or her position as a board member must exercise good judgment and satisfy its fiduciary obligation to the corporation. The discussions and decisions regarding the management of the property and the unsold shares may require the managing agent/director to recuse him or herself from such discussions and decisions. The board and its council will need to evaluate the facts and issues to determine if a potential conflict exists relating to the managing agent/director.”

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