Cooperative and Condominium

July 12, 2013

Turn Down the Music

New York City’s population density inherently gives rise to noise complaints by cooperative neighbors. The New York Post reported today about a lawsuit filed by a cooperative shareholder against his neighbor for unreasonable noise caused by his neighbor’s piano playing. This blog entry will discuss the various issues raised by this lawsuit.

Cooperatives are legally formed upon the acceptance of its Offering Plan for filing with the Real Estate Finance Bureau of the New York State Attorney General’s Office. The cooperative’s Proprietary Lease and House Rules would be included in its Offering Plan. At the closing, the shareholder signs the Proprietary Lease and House Rules, agreeing to the terms thereof. The Proprietary Lease contains the provisions by which a shareholder has the right to occupy a particular unit and the regulations governing such occupancy, such as the obligation to pay maintenance, sublease rules and rights to transfer the unit. House Rules contain specific itemized rules such as where packages may be delivered, laundry room rules, move-in and move-out regulations, and rules governing which elevator can be used for freight or pets. If the House Rules are violated, such a breach is deemed to be a violation of the Proprietary Lease. The Proprietary Lease contains provisions for the cooperative’s board’s response to a default, typically commenced by the service of a default notice, which may result in the service of a termination notice.

Most Proprietary Leases contain a clause prohibiting a shareholder from making unreasonable noises. Likewise, the House Rules governing many cooperative buildings commonly prohibit the playing of musical instruments between the hours of 11:00 pm and 9:00 am. Once a shareholder finds the noise to be unreasonable, he should bring the matter to the attention of the board of the cooperative, encouraging the commencement of a default procedure against the offending shareholder under the objectionable conduct provisions contained in the Proprietary Lease. Should the Board remain unresponsive, the shareholder may need to commence a lawsuit against the cooperative for failure to enforce the governing documents and against the shareholder who is continuing to make unreasonable noise.

July 3, 2013

Real Estate Flips: Are They Good for the Neighbors?

By Weiss & Weiss

The resurging real estate market brings with it the real estate “flipper”. A flipper is a person or entity that purchases property with the goal of renovating it for a quick sale at a substantial profit. The flipper never intends to occupy the property in the neighborhood. Recently, the Wall Street Journal reported that luxury homes are joining more modest properties in the flip market. Even cooperative and condominium apartments can be subject to flipping.

In a market-oriented society such as ours, one could argue that it is one’s own business as to how one invests and that properties can be purchased and sold despite one’s intent. However, others may argue that it is unseemly for opportunists to purchase properties merely with the intent to harvest a profit. The following are examples of how this plays out. A lender takes back a house in disrepair through the foreclosure process. Prior to the foreclosure, which took years, the house fell into significant disrepair and was unsightly to neighbors. Perhaps hazardous conditions developed from a dismantled oil tank and the removal of copper materials from the home. The foreclosed eyesore potentially reduces the property values of the surrounding neighbors. In this scenario, anyone who eventually purchases the house from the foreclosing lender and rehabilitates it into a habitable and cosmetically pleasing condition should be appreciated. Since the flipper’s goal is to sell to a person who will occupy the home, the flipper is this instance is beneficial to the neighborhood. Ultimately, there will be an occupant who becomes a neighbor contributing to the community.

Flipping takes on a different complexion in a cooperative building. It is not unusual for cooperative apartment corporations to charge a “flip tax” upon the sale of a unit. While flip taxes are typically charged on all sales, the philosophy behind them is to discourage short term ownership merely intended to raise a profit and to move funds back to the cooperative community upon sale in a means to benefit the entire cooperative “neighborhood”. Flip taxes are calculated in several ways, such as by a certain dollar amount per share. If one owns 200 shares and the flip tax is $5 per share, then the flip tax collected would be $1,000. Some buildings calculate the flip tax as a percentage of the sale price. If the sale price is $400,000 and the flip tax is at 1%, then the flip tax charged would be $4,000. Flip taxes may also be calculated as a percentage of the net profit, such as sale price minus original purchase price, less sale expenses such as brokerage commissions and transfer taxes. Flip taxes are to be enacted in accordance with the building’s governing documents, giving particular attention to whether the Board or all shareholders must vote on their enactment and the percentage approval vote required. Since most units within a building are similar and the state of repair is not apparent from the hallway or outside the building, flipping a unit is not necessarily beneficial to the rest of the building unless a flip tax is charged to the seller.

May 30, 2013

Renewal of Residential Leases in New York

By Weiss & Weiss

Our firm often fields inquiries from clients regarding residential lease situations. One common question relates to the right to renew an existing lease. This blog post will explain certain conditions which may apply to the renewal of a lease after it expires.

We are first assuming that there is a written lease between the landlord and the tenant for the premises in question. If a tenant takes possession of the premises without any written lease whatsoever (this situation arises more than one would expect), then the tenancy is considered a month-to-month tenancy. This means that either party may terminate the tenancy by giving one month’s notice to the other party. For this reason, a written lease will protect both party’s interest in the tenancy.

A written lease between the landlord and tenant will generally be for a specific period of time. Many leases run for multiple years, such as two, three, or even five year terms. Smaller premises or those for cooperative or condominium apartments may rent for only one year. The question we are asked is what rights the tenant may have to a renewal lease after the lease term expires.

April 26, 2013

Latest Developments Relating to Fair Housing in Westchester County, New York

By Weiss & Weiss

A recent article in the New York Times discusses new legal developments relating to the Westchester County, New York fair housing settlement. For those who are unfamiliar with the situation, a lawsuit was brought in 2009 by a public interest group against Westchester County, alleging housing discrimination. In order to settle the lawsuit in 2009, then-County executive Andrew Spano agreed to build at least 750 units of “affordable housing” in Westchester by a Court-approved settlement agreement.

Recent developments in this case involve the federal government threatening to have the County held in contempt of Court for failing to comply with the settlement agreement. In addition, the federal Department of Housing and Urban Development has stated that it will revoke $7.4 million in money awarded to Westchester County if the county does not comply with the terms of the settlement.

More specifically, the settlement agreement required that the county create 750 houses and apartments for moderate-income people in particular Westchester neighborhoods. The County has claimed it is actually ahead of schedule to accomplish this goal. The current County Executive states that the County already has financing for 305 units of affordable housing in place. However, HUD and the housing advocates who brought the original lawsuit claim that the County is not only obligated to build affordable housing, but also to take affirmative steps to prevent housing discrimination within Westchester under the terms of the settlement agreement.

February 1, 2013

The Legal Distinctions between Cooperative and Condominium Transactions in New York

By Weiss & Weiss

apartment building.jpg New Yorkers who purchase an apartment typically buy what is known as a cooperative (“Co-op”) or condominium (“Condo”). There are important legal distinctions between a cooperative and a condominium that are notable during the purchase process and after the closing of the transaction. This blog post addresses these distinctions.

A cooperative is a corporation formed for the purposes of common ownership, where the New York State Attorney General has accepted the relevant Offering Plan for filing. An owner of a cooperative apartment owns a particular number of shares in the corporation and is also designated a proprietary lease whereby the shareholder may occupy a particular unit in the building. A condominium is also governed by an Offering Plan. However, a condominium is real property, wherein a unit owner obtains a Unit Deed identifying a particular unit to be occupied and a percentage of common interest (i.e. common areas of the building such as the lobby, hallways, roof, etc.) in the building that is owned.

Generally, cooperative boards strictly govern all resident activities, starting with the purchase of an apartment. A detailed application is usually required to be submitted to the board along with all references and financial data requested by the cooperative board, prior to attending a personal interview and obtaining board approval to the transaction. Once approved, the parties in the transaction will attend the closing at the office of the transfer agent for the cooperative to obtain the stock certificate and proprietary lease evidencing ownership of the unit. A purchaser cannot acquire the apartment without the approval and participation of the cooperative board and its transfer agent.

November 30, 2012

New York Residential Real Estate Contracts- Legal Issues

By Weiss & Weiss

Residential real estate contracts in New York State are prepared and negotiated by attorneys, rather than by other real estate professionals such as real estate brokers. This custom allows the opportunity for parties to real estate transactions to have professionally prepared contracts, serving as the road map for the entire transaction. There are particular provisions in a typical New York residential real estate contract of which our readers should be aware.

The most common conversation that we have with our real estate clients, whether they are the purchaser or the seller, pertains to the closing date. The standard contract clause will provide that the closing date will be “on or about “x” date”. This has been interpreted by New York courts to be a ” target=”_ date, not a date that either party must absolutely attend a closing and complete the transaction. We advise our clients not to schedule the movers, arrange for contractors to commence renovation projects or set up the closing of another transaction based upon an “on or about” closing date. New York legal custom generally allows thirty days after the target “on or about” closing date before one of the parties may legally expect to hold the closing.

At this point, it would then be appropriate for one of the attorneys to send a “time of the essence” closing date notice. A time of the essence notice must be in writing and will specify the time, date and location when the party sending the notice expects to perform its contractual obligation, deemed “law day”. New York Courts have held that time of the essence notices are to be sent on no less than thirty days notice. The party sending the notice needs to attend the closing on “law day” and to perform the closing, such as by having their client sign closing documents and having other parties such as title closers attend. In fact, it is common practice to have a court reporter attend the time of the essence closing to document a party’s failure to perform, so that a contract downpayment may be seized or another remedy for breach of contract employed.

September 27, 2012

Lawsuits Concerning Conditions in New York City Cooperative Buildings

By Weiss & Weiss

The Wall Street Journal recently reported the filing of a lawsuit by “Law & Order” actress S. Epatha Merkerson concerning conditions in her New York City cooperative apartment. While the lawsuit has gained the attention of the press because it involves a celebrity, the conditions described in the lawsuit are commonly experienced by numerous New Yorkers.

The lawsuit alleges that the condition of the building’s roof caused leaks and mold conditions to the cooperative apartment owned by the actress. After the purchase of the cooperative apartment, the cooperative made repairs to the roof over the plaintiff’s apartment. Said repairs are alleged to have been insufficient, causing continued water leaks and mold to develop. The actress claimed that she was unable to live in the cooperative apartment, as well as being unable to sell the apartment or sublet it at market value.

Most of the claims in the lawsuit involve the statute known as New York State’s Warranty of Habitability Law. This law requires that residential premises be fit for human habitation and that residents not be subjected to conditions that are dangerous, hazardous or detrimental to their life, health or safety. The Warranty of Habitability Law is most commonly applied to rental apartments in New York State. Nonetheless, it is longstanding caselaw in New York State that the Warranty of Habitability Law also applies to cooperative apartments. The application of the Warranty of Habitability differs depending on the type of housing to which it is applied. For instance, if a condition is solely within the walls of the apartment and was not caused by an external factor, it is the responsibility of a cooperative shareholder individually. In a rental unit, the same condition would be the responsibility of the landlord, but not the tenant.

September 7, 2012

Legal Debate Over Fair Housing Settlement in Westchester County Continues

By Weiss & Weiss

As a previous blog post has discussed, Westchester County settled a lawsuit brought in 2009 which alleged that the county falsely certified that it had complied with federal fair housing requirements when it accepted community development funds. This lawsuit was settled under a consent order under which Westchester County agreed to use $51.6 million to build 750 units of “affordable” housing over seven years in 31 communities throughout the county.

Any settlement of a complex litigation matter involves necessary compromises for all parties involved. Complicating the situation is the fact that the settlement was negotiated and executed by County Executive Andrew Spano, who is no longer in office. The current county executive is Rob Astorino, who had no role in the original settlement. A recent editorial by Mr. Astorino in the Journal News states his position on the matter. He believes that the county is complying with its obligations under the settlement agreement, but believes that the U.S. Department of Housing and Urban Development (HUD) is overreaching and has misinterpreted the intent of the agreement.

At the core of the dispute is the question of the required goals of the settlement. Mr. Astorino believes that the settlement is meant to promote affordable housing throughout the county, and is committed to building the 750 units as mandated by the agreement. HUD’s interpretation is that the overall goal is to integrate the county’s housing patterns, and that such integration should be the primary purpose of the settlement.

August 2, 2012

A New York Bidder’s Expectations Concerning the Property Auction Process

By Weiss & Weiss

Those who bid at property auctions in New York are confronted with many potential issues. Auction properties are often attactive to first-time homeowners and to investors because they are perceived as being less expensive than comparable properties. If the property is residential, the bidding process differs based upon whether the property is a single-family house, a condominium unit or a cooperative unit. The type of property, whether it is commercial or residential, may have implications for tenants already in occupancy and whether such tenants may have statutory occupancy rights.

The auction process for a single-family home is similar to the auction process for a condominium unit, because both types of property are real property. The major difference is that common charges are levied by the Board of Managers of a condominium, allowing for the filing and foreclosure of a lien for unpaid common charges by the condominium Board. However, once the matter is in foreclosure, it is supervised and directed by a Court, meaning that same is litigated and requires a judgment of foreclosure issued by a judge before proceeding to auction. In a condominium, mortgage balances take priority over unpaid common charges. As such, in many cases, an auction bidder in an auction for unpaid common charges will likely be taking the unit subject to the outstanding mortgage, requiring the successful bidder to pay mortgage arrears and keep the mortgage current to avoid foreclosure.

Cooperative bidders will experience an auction process that is non-judicial (not supervised or litigated in the Court) unless a party requests that a Court issue an injunction to prevent or delay the auction. Since cooperative maintenance charges take priority over a share loan, it is possible for an auction bidder to obtain the unit for only the amount of the maintenance arrears and sever the security interest of the lender, provided that the auction is properly noticed. Our readers should note that this is an unlikely scenario because most lenders will choose to cure a maintenance default by paying it themselves, because a cooperative unit is likely to be more valuable than the maintenance arrears due to the cooperative.

July 26, 2012

Fair Housing in Westchester County, New York

By Weiss & Weiss

A recent article in the Journal News discusses the latest developments in the Westchester County, New York fair housing settlement. For those who are unfamiliar with the situation, a lawsuit was brought by a public interest group against Westchester County, alleging housing discrimination. In order to settle the lawsuit, then-County executive Andrew Spano agreed to build at least 750 units of “affordable housing” in Westchester. This blog post will discuss the ramifications of the settlement, as well as the legal issues associated with the sale and resale of affordable housing.

Long-time Westchester residents will recall that in 1980, a similar case was brought against the City of Yonkers, also alleging discrimination in housing. While it is beyond the scope of this post to address the merits of this case (as well as the case against Westchester), the legal issues become important for potential buyers and sellers of property in Westchester. In the Yonkers case, Judge Leonard Sand ruled that Yonkers had discriminated against minorities and ordered the city to provide low-income housing in all areas of Yonkers for minority applicants.

Of course, implementation of such a remedy is far from simple, and the Yonkers case involved many years of litigation over the issue of whether the city was in compliance with Judge Sand’s directives. Unfortunately, the same issues now seem be arising in the Westchester County lawsuit. Once a municipality enters into a settlement of a discrimination lawsuit, as Mr. Spano did on behalf of the residents of Westchester County, there may be no end to judicial enforcement of a remedy. It seems unlikely that a Court will ever reach a finding that no further discrimination exists and end its supervision of the construction of affordable housing.