May. 29, 2007 - advantages to the much-maligned coop ownership, vs. condos
getting rid of a bad neighbor is much easier in a coop
Another interesting bit in Sunday’s NY Times Real Estate Q + As section deals with one way in which coop boards have much more power than condo associations – dealing with seriously disruptive residents / shareholders.
Over the years, the co-op, a 64-unit building at Park Avenue and 87th Street, sued the Lapiduses a number of times. They were required to pay $170,000 to the co-op for maintenance, late fees and assessments and more than $400,000 in fees to the co-op’s lawyers.
The co-op also sued the couple over their air-conditioning system, accusing them of replacing the existing equipment with a water-cooled system connected to the building’s water supply. The co-op said the new system leaked and damaged the apartment below.
At a special meeting in December 2004, the co-op board voted unanimously to terminate the Lapiduses’ propriety lease. In accordance with the co-op’s governing documents, a special shareholder vote was required to ratify the board’s action. The court decision noted that the Lapiduses had threatened to sue any shareholder who voted to evict them, but after the board advised the shareholders that the co-op would assume responsibility for any judgments resulting from such litigation, 98 percent of the building’s shares were voted in the board’s favor.
This coop is one of the tony Park Avenue coops, 1050 Park Avenue, a long-established coop that requires that buyers finance no more than 50% of their purchase price. (I don’t know this particular building’s standards, but many “50% coops” require that the purchasers have a multiple of the purchase price in liquid assets following the purchase. So the purchasers-in-contract of #13D, which was asking $2.695mm [and $2.830/mo] for a Classic Six with 1,850 sq ft] may have to have upwards of $5.4mm or $7.8mm in the bank – in addition to other significant wealth – to qualify to purchase here.) The point being that the shareholders at 1050 Park Avenue who were so upset at their troublesome neighbors probably thought they were safe from The Wrong Kind Of People.
This was certainly not a simple process, with years of aggravation, then a board vote, then a special shareholder vote, but the court agreed that the coop had the ability to use its best judgment for when a shareholder should be ‘voted off the island’ (not a quote from the court!).
In contrast, the process by which a condominium deals with an abusive owner / resident is far more cumbersome. Since each condo owner owns the real property within its four walls, ceiling and floor, the path to expulsion requires that the neighbors establish that the offending owner is a “nuisance” under the law – with no presumption similar to the business judgment rule that protects coop boards in similar situations. Then the condo association has to evict the offending condo owner in landlord – tenant court (a venue notoriously disposed to favoring “tenants”).
coop board power is limited by shareholder assent
Most coops require a super-majority of shareholders voting to expel an offensive shareholder, which seems a reasonable limit on potential abuse of power by a coop board dealing irritating shareholders. (This coop got 98% of the shareholders to approve the expulsion; my guess is the offending shareholders held 2%.)
In a world in which many people tout the benefits of condo ownership vs. coop ownership, the power to deal with offensive shareholders is a significant way in which coops can be better than condos.
I blogged about a war between a condo association and one unit owner in January (un-neighborly neighbors / the dynamics of dysfunction), in a situation in which the condo was not even trying to evict the owner – just get him to stop harassing the board, the managing agent and the condo’s lawyers. A coop might have been able to get rid of that guy.
Is anyone surprised that the offending shareholder is a lawyer?
© Sandy Mattingly 2007
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