Q&A: Setting Up Shop

I manage a small Mitchell-Lama co-op. Our local grocery store, which has served  as an important resource for our senior residents who can’t go too far, is closing down. We were wondering what we would have to do to set  up a little store in our co-op’s community room. We would sell a limited number of essential items (ie. milk,  butter, bread, paper products) so that the seniors would still have that  convenience.  

 —Storeless in the Bronx

 “There are several issues to consider with regard to the operation of a grocery  store on the co-op premises. As always, one must look to the operative  documents of the co-op, i.e. the proprietary lease and bylaws,” says Stephen Lehrman of Lehrman, Kronick & Lehrman LLP in White Plains, a firm specializing in condo/co-op and  landlord/tenant law. “Generally speaking, designating the community room as a ‘store’ could be done by a vote of the board and would be similar to the board creating  a storage area out of an otherwise unused common area. No shareholder approval  would be required. In addition, as long as the ‘store’ served only co-op residents, the 80/20 rule would not come into play since any  income from the store would not be considered commercial income.  

 “There would be, however, various other problems to consider. First, operating  such a facility on co-op premises would probably require permits from the  appropriate municipality which could include the necessity of a new Certificate  of Occupancy for the use, Health Department permits, Fire Department Permits,  etc. Second, the storage of perishable items might require the installation of  refrigeration equipment and other specialized equipment that might be quite  expensive. Third, such a facility would require a person to be present when it  was open and finding a volunteer to staff the facility might be difficult.  Fourth, operation of such a facility would undoubtedly require additional  insurance coverage, which would further increase the cost.  

 “For a small property, it does not appear that such an operation would be cost  effective and the occupants who did not use it would, in effect, be required to  subsidize its operation through higher maintenance charges. Also, the cost of  construction might very well require an assessment. A better solution might be  to arrange to have a local grocery store deliver the food items for a small  charge or to lease the space in question to a vendor who would be required to  comply with all construction and permitting requirements at his expense. In  such a case, the rental income would then be considered commercial income but  it is unlikely that the 80/20 rule would be triggered unless the building had  other commercial income.”  

 

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