Great class last night - Property Management

I just want to send a special thank you to the Mattituck-Laurel Historical Society for donating their fabulous school house for our continuing education course last evening. It was an experience that I will remember for a lifetime. What a thrill to each in an 1840s working school. I only wish that they had left the rulers to smack the naughty students with.

If you don't know about the Society, click here to learn more. While I loved the experience, the Society needs your help to stay erect and safe. In fact, we discussed the need for a walkway from the parking lot to the school in order to make visiting the site safer. Please do your part and donate to this worthy cause by becoming a member. Just click on this form to join.

Cooperative House Rules Illustrated

A case decided yesterday, 5/3/12, perfectly illustrates the power of cooperative boards. The case addresses whether the board, under the Business Judgment Rule, may create a house rule that restricts subletting. In the situation in the case the restriction imposed was as follows:

 "no [l]essee shall be permitted to sublet the whole or any part of an apartment or renew or extend any previously authorized sublease for more than two years during any four consecutive year period unless consent thereto has first been duly authorized by a resolution of the Directors or . . . by [l]essees owning at least 66⅔% of the then issued and outstanding shares of the Corporation."

The Appellate Court held that the board did have the power to enact such a rule under the Business Judgment Rule. Even going further, the Court rejected a prior decision to the contrary stating cooperative boards have “the authority to freely adopt a new policy in the legitimate interest of the cooperative”.

To read the decision, click here. 

Co-Op House Rules & the Proprietary Lease

When purchasing a cooperative apartment you should always read the house rules as they set the standards for living in this environment. For example, the house rules may require that a percentage of an apartment be covered with carpeting to prevent noise or a house rule may not permit swimming in the pool after a certain hour or the rules may contain a no pet policy. Nonetheless, house rules should not be read in a vacuum and its quite important for prospective purchasers to not only study the house rules, but also the proprietary lease, which sets the outer limits of a Board's authority to set the rules. So, when a rule exists in the house rules that is contrary to the proprietary lease, the lease typically holds the day.

Yet, if you are planning to move into a building where the proprietary lease authorizes the Board to set rules for something like carpeting and the house rules do in fact set such a rule, you will be blown away to know that a Board needn't enforce this rule and no one can force them to do so. Why is this you may ask? The answer is called the Business Judgment Rule whereby a Board acting in good faith is shielded from suit when making decisions. So a rule is only enforceable rule when the Board elects to enforce it.

Nonetheless, Boards should act reasonably and their rules are much more likely to be enforced when the rule not only is embodied in a house rule, but also exists in a proprietary lease. Moreover, Boards should uniformly apply their rules or be mindful of both Fair Housing Act violations for discrimination or claims of waiver when they do choose to enforce the rule randomly.

So, perspective purchasers should review the rules and proprietary lease prior to purchasing, but realize that its also important to get to know the members of the Board because their personalities may dictate your living environment.