Coops almost free of Tenant Protection Act Restrictions
Hallelujah. When new law passes, the constraints by the Tenant Protection Act like the recovery of legal fees in housing actions will not apply to coops.
Read more.
Mitchell-Lama Coop Governance Requirements About to Change
Mitchell-Lama reform bill (A.7272/S.6412) has passed both the New York State Assembly and Senate and now heads to the Governor’s desk. Once signed, here are some of the changes that Mitchell-Lama Coop Boards and their managers need to know:
- the board must hold at least six public meetings each year.
- proxy voting is eliminated and replaced with an absentee ballot system.
- dissolution will be a lot tougher because the threshold needed to voluntarily dissolve will be 80% of all dwelling units and back-to-back dissolution votes cannot be held, because there will be a five-year moratorium following a failed dissolution vote.
- Finally, any and all formal steps toward privatization can’t take place until the last of the Executive Orders related to the COVID-19 state of emergency expires or is rescinded.
Read more here.
Condo Boards have to be Careful in Withholding the Waiver of the Right of First Refusal
The Board of Managers of the Oceana Condominium No. Two learned recently that withholding the waiver of the right of first refusal cannot be used to block an unwanted condo sale.
In this particular condo, the President of the Board owns and lives in the unit directly below the unit being sold, and he allegedly did not want children living above him. The prospective purchaser has young children, and the President also allegedly did not want a sale for the low sales price. The contract was subject to short sale approval by the bank holding the first lien on the unit, a short sale which had been approved by the sellers bank. The purchaser claimed that the Board was troubled that it would appear in the public record and lower the value of the units in the development, so the Board interfered with her contract with the selling unit owner, so she was not able to purchase the unit. The condo board did not choose to exercise their right of first refusal, but they would not provide the document which this development ordinarily provides, stating that they were not exercising their right of first refusal. Without this document, the purchaser’s lender refused to close. The sale was lost as a result of the Board’s delay, the holder of the second lien on the unit foreclosed on the unit, preventing the purchaser from closing and the purchaser sued.
The Court threw out all of the claims against the Board and individual Board members except for a tortuous interference with contract claim against the Board. So, the litigation continues, with escalated legal fees and costs escalating because of the decision making by the Board or its President. In this particular case it appears that directors and officers insurance responded with a defense but even then the condo is responsible for paying a deductible and claims like this can impact future insurability and/or the cost of insurance. In some cases, we’ve seen individual board members ask for their own counsel because of possible conflicts of interests considering the Board President there seems to be the primary culprit.
With some good legal advice and management guidance, this situation could have been contained and avoided. For the Oceana Condominium No. Two, the saga continues.
Read the decision here.
New Legislation would change standard for Coop and Condo Evictions
More tenants’ rights legislation. If passed condo and coop owners would have to show “good cause” to evict.
The bills, if enacted, would change how someone owning real estate could treat an occupant of space regardless of whether the occupant had a legal right to occupy the space. These bills apply to all residential real estate except rent-stabilized and rent-controlled apartments, and owner-occupied houses with less than four units.
Covid-19 Condo, Coop, HOA Disclaimers
Covid-19 changed a lot. Condominium, cooperative HOA boards had to change as well. Protecting owners and residents in this new world presents many legal challenges and potential liabilities. Mitigating liability should be on the minds of every board and their management’s.
We haven’t seen an influx of Covid-19 liability lawsuits yet, but they will surely come in time. Insulating community associations and their boards and managers should definitely be on the agenda. Particularly because the insurance industry has indicated that COVID-19 claims will not be covered by insurance per the broad disease and health exclusions found in most policies.
So, what can be done? First, be careful and thoughtful in decision making. Make sure the board has authority to do what it is doing or not doing. This can be tricky, especially with ever changing federal, state and local laws. Before a board makes a decision that has legal implications, consult with an attorney and get sound legal advice. Boards are allowed to rely on the advice of their counsel and that will be a defense if their decision making is challenged by owners or others.
Keep a historical record of the decision making in well thought out minutes and other documentation. Sometimes lawyers will advise just to take minutes on the actual decision made by a board and not add too much detail as it is not required. The other school of thought and advice is to include details when you know the minutes are going to be used to help defend a board’s decision. This is a minefield that seasoned advice can help navigate.
Some boards are considering amending their governing documents to protect against Covid-19 liability for the association and board members individually. As with all disclaimers of liability, they are not a shield against the association being found liable for failing to take reasonable precautions to protect against foreseeable harm or injury. So, a disclaimer of liability, while helpful, is not and should not be relied on by the board to allow it to ignore open and obvious threats or dangerous conditions and take reasonable precautions to avoid them. Amending governing documents, however, is not a simple task and usually requires a meeting of owners and a vote in favor of the amendment by a super majority of owners. After passing, the amendment typically has to be recorded in the land records as well. If successful, a disclaimer of liability for COVID-19 and possible future pandemics is not such a bad idea considering that we expect insurance not to cover this liability, or become very expensive to procure such coverage. Adding a buffer in the governing documents against claims for which, as mentioned above, the association will not likely be able to insure against, should definitely be considered.
During the pandemic, some boards have adopted written waivers for owners and residents to sign before using common element. This is a policy that should be employed moving forward and will give the association and individual board members cover from liability. We’ll have to watch and see whether such waivers hold up in court after they are tested in court cases, but they certainly can’t hurt as another layer of protection. Doing them correctly so that they do not run afoul any other laws, such as discrimination laws, however, is certainly important.
Here’s a sample of an Assumption of the Risk and Waiver of Liability Relating to Coronavirus/COVID-19 form that one condo association adopted. We do not recommend the form, but wanted to give you an idea of what some association boards are adopting. If your association is interested in adopting such a waiver, it should be tailored to your association. There is not a “one size fits all” form that should be used.
The novel coronavirus, COVID-19, has been declared a worldwide pandemic by the World Health Organization. COVID-19 is extremely contagious and is believed to spread mainly from person-to-person contact. As a result, federal, state, and local governments and federal and state health agencies recommend social distancing and have, in many locations, prohibited the congregation of groups of people.
The Board of our condominium association has put in place preventative measures to reduce the spread of COVID-19; however, our condominium cannot guarantee that you or your child(ren) will not become infected with COVID-19. Further, rental of a unit and participating in common area activities could increase your risk and your child(ren)’s risk of contracting COVID-19.
By using the common area facilities in our condominium, you voluntarily assume the risk that you and your child(ren) may be exposed to or infected by COVID-19 by renting and occupying a condominium unit, and/or accessing and using the common areas and amenities including but not limited to the pool, exercise and game rooms, tennis and basketball courts, and other common areas, and that such exposure or infection may result in personal injury, illness, permanent disability, and death. You understand that the risk of becoming exposed to or infected by COVID-19 at our condominium may result from the actions, omissions, or negligence of you and others, including, but not limited to, our condominium’s employees, and other renters and their families.
You voluntarily agree to assume all of the foregoing risks and accept sole responsibility for any injury to you or your child(ren) (including, but not limited to, personal injury, disability, and death), illness, damage, loss, claim, liability, or expense, of any kind, that you or your child(ren) may experience or incur in connection with our condominium or utilization of our condominium’s amenities (“Claims”).
On your behalf, and on behalf of your children, you hereby agree to release, covenant not to sue, discharge, and hold harmless the our condominium association, its Board, employees, agents, and representatives, and our condominium’s owners of and from the Claims, including all liabilities, claims, actions, damages, costs or expenses of any kind arising out of or relating thereto. You understand and agree that this waiver and release includes any Claims based on the actions, omissions, or negligence of the our condominium and its Board, employees, agents, and representatives, and our condominium’s owners whether a COVID-19 infection occurs before, during, or after your occupancy of a unit or use of the common areas at our condominium.
Again, each association is different and requires specific legal advice in order to protect itself from liability and other exposures. Staying ahead of the curve and doing everything legally and reasonably possible to do so, is important.
Another Wrinkle in Holder of Unsold Shares’ Benefit Analysis
On Thursday, January 28th, the Appeals Court in the First Department which covers Manhattan and Bronx coops issued a decision which clarifies and changed the complicated law regarding holders of unsold shares and their entitlement to special privileges.
In Pastena v 61 W. 62 Owners Corp. (1st Dept 2019) the First Department said that “paragraph 38 of the proprietary lease, which purportedly exempts holders of unsold shares from certain expenses and fees assessed by the landlord, is void as a matter of law (see Spiegel v 1065 Park Ave. Corp., 305 AD2d 204 [1st Dept 2003])”. The Court’s pronouncement allowed coops to take a strong position that the paragraph in the proprietary lease that holders of unsold shares relied upon to say they didn’t have to pay sublet fees, was void and thus, holders of unsold shares had to pay like all other subletting shareholders. There was a lot of commentary and debate over whether the Court was correct in its statement, but that was the law in Manhattan and the Bronx.
At least until Thursday January 28, 2021, when the Court was given a softball opportunity to clear up its pronouncement. Although not argued below before the Supreme Court, on appeal, a coops counsel raised the Pastena pronouncement for the first time on appeal. The First Department disregarded the argument as not being raised before the Supreme Court below and thus not appropriate for appeal, but decided to speak on it anyway.
In Bellstell 7 Park Ave., LLC v Seven Park Ave. Corp., the First Department clarified/changed its pronouncement in Pastena, explaining now that only original purchasers from the sponsor can benefit from its prior decision voiding a paragraph from the proprietary lease as against public policy, not a subsequent holder of unsold shares.
The First Department now says that “This did not render the entirety of paragraph 38 void, however, as holders of unsold shares are routinely granted special privileges in exchange for their regulatory obligations, as they are, de facto, a different class of stock than an ordinary purchaser”. This clouds the issue though because the question now is what are the “regulatory obligations” and did the proposed holder of unsold shares comply with the “regulatory obligations” and what if they didn’t.
Coops with these complicated questions could put the burden on the proposed holder of unsold shares who has the burden of establishing their preferential status. Instead of expensive litigation, the parties may be able to negotiate an acceptable resolution. Having experienced counsel to navigate these complex waters is critical.
Federal Government Halts Some Evictions Again
Dr. Rochelle Walensky, the director of the US Centers for Disease Control and Prevention, extended an order today halting evictions for some people through March 31, 2021.
It covers people who earn $99,000 or less a year and cannot make payment because of a loss of income or extraordinary medical costs. Tenants must prove they have exhausted efforts to get government assistance to pay rent, are making some effort to provide payment, and will be forced to move to congregate living settings or left homeless by eviction.
Landlords have to press the issue and make tenants seeking this protection prove their eligibility. This however doesn’t mean the tenants are free not to pay rent. Rent is not excused.
Can Boards Require Covid Vaccines?
Over the next year, Covid-19 vaccines will hopefully become readily available to the general public. Boards of community associations will undoubtedly have to decide on vaccines. Can they mandate them of employees? Can they mandate that resident owners be vaccinated? How about tenants? How about property managers and other independent contractors? Will vaccines become a competitive advantage for contractors selling their wares or services because they are 100% vaccinated? Boards will have a lot to consider and ought to get current legal advice before making any business decisions on vaccines. This is a new world that we are experiencing, but there are all sorts of laws that have to be considered and new ones are sure to be enacted as we muddle through.
With respect to employees, the landscape is getting clearer but the answers are still a little cloudy. Soon enough someone will be fired or not hired because they are not vaccinated and we’ll have some case law to guide us. Here’s were we are on employees.
Mandatory vaccinations are not new but have been historically limited to health care and education market segments. While there is no clear legal prohibition on mandatory vaccines in the employment context, these requirements are subject to several legal exceptions, most notably accommodation for disability, religion and pregnancy.
On December 16, 2020, the Equal Employment Opportunity Commission updated its COVID-19 guidance to express the agency’s views on the legal implications of COVID-19 vaccine under the Americans with Disabilities Act (ADA), Title VII and other EEO laws. The EEOC’s guidance is not binding on courts, but it is expected to be highly influential. Key takeaways from the guidance are as follows:
- A vaccine is not a medical examination under the ADA, but pre-vaccination questions answered by an employee as a part of an employer’s vaccination program may be ‘disability-related inquiries’ under the ADA that should be avoided absent business necessity.
- Employers may need to accommodate an employee with a disability who cannot take the vaccine because of that disability.
- Employers may need to accommodate an employee’s sincerely held religious beliefs or pregnancy, if either prevents an employee from taking the vaccine.
To date, the Occupational Safety and Health Administration has not taken a position on whether an employer can require the COVID-19 vaccine or must at least offer it to meet statutory safe workplace obligations.
Then there is the question of unionized employees. What does the Collective Bargaining Agreement in place say. There is no real question that the adoption of mandatory and non-mandatory vaccination programs by unionized employers are a mandatory subject of bargaining. But that does not mean that employers cannot start a vaccination program or require vaccination.
Employers with current union contracts should start by examining the management rights and other provisions of their contract to determine if they are broad enough to waive a union’s right to bargain. Even in the absence of a management right to proceed, most employers can still bargain over vaccine program issues with their unions. Most employers will also benefit from keeping their unions involved even if there is a management right to proceed with a vaccination program, as doing so can assist with employee buy in and avoid grievances (and adverse arbitration results).
Aside from the above, board employers need to consider the fact that while many employees may embrace vaccination without hesitation, a large percentage of people are reportedly skeptical or concerned about side effects or other unknown health implications. As time goes by and we learn from experience in vaccinations and their hopeful positive effect, people will likely be less concerned and apprehensive.
In the end, coop, condo, HOA and other community association boards. have to act in the best interest of their association communities. Making decisions on vaccinations are likely going to be on the board meeting agendas soon enough. Navigating these uncertain times is difficult without experienced professional advice.
Both Landlords and Tenants may be Better Off Working Out Covid Decisions Sooner than Later
Stay, go. Throw them out, keep them. Tenants and landlords will have to decide which route they want to go in these challenging economic times. The Covid pandemic has wrecked havoc on the real estate market and may continue to do so for awhile.
Tenants aren’t paying rent because they didn’t plan for these circumstances, or are just looking to renegotiate for better terms. Landlords with those nonpaying tenants are struggling as well. Some are over leveraged themselves with big loans to pay, taxes, other operating expenses, etc. that continue on irrespective of whether the tenants are paying. Without rent being paid, however, landlords risk default on their own obligations which can be crippling.
When disputes happen, there is always the landlord-tenant courts, but the pandemic has negatively impacted the court system as well. With a flood of nonpayment and eviction cases on hold when the court’s closed at the beginning of the year, there is an extreme backlog of cases and courts are still not open for in person appearances in many places, making virtual appearances the new norm. Judges, as well as the attorney bar, are slowly figuring things out, but cannot be relied upon as a quick fix to the economic and other woes of landlords and tenants.
We are seeing a lot of compromise across the negotiation tables. The parties are negotiating away rights. Sometimes deferring rent so that it will eventually become due, and in other cases, forgiving rent obligations. Tenants who want to stay in business, especially ones with personal guaranties backing their leases which are harder to run away from, are compromising as well. Sometimes, just turning over the keys to the landlord to allow for a new rental with a paying tenant is the best course of action. In those instances, landlords may recover possession but filling the space with a financially capable replacement is sometimes daunting; especially now.
As we progress through this pandemic, there is likely going to be a ripple effect on the economy from non-paying tenants and landlords who both aren’t willing to budge. Landlords who can’t easily get possession and still have to carry their debt and other business obligations, sometimes have to give in a bit in order to keep the tenants in business in hopes that they can start paying again. The word bankruptcy is being thrown around a lot these days, sometimes as a negotiating point by tenants. The risk of tenant bankruptcies is real and at the end the landlords are still left holding the bag of their own financial obligations.
Appreciating all of this, tenants and landlords are best to try to work out their differences early on and perhaps share the pain in renegotiation deals if it makes sense or negotiating early exists by a tenant if that makes more sense. Addressing the issues up front rather than kicking the can down the road to see what happens may be in everyones best interest. In the end, if too many cans are kicked it is going to get even more difficult to achieve a swift economic recovery which is in the best interest of both landlords and tenants.
Paycheck Protection Program seemingly opened up to Cooperatives but maybe not Condos – Call your Bank to be Sure ASAP
PPP loans for coops may have finally arrived. Call your bank asap. Unclear regarding whether condos are qualified as well. Condos should call their banks as well just in case.
Read more in a Habitat article here.
