For many years, service on boards of managers or directors for condominium and cooperative residential buildings was a privilege and source of influence within a building. Today, between the unfunded mandates, rising operating costs and increasing contentiousness within buildings, board service has become more burdensome.
Boards are facing unfunded mandates, including fair housing requirements, the threat of the Corporate Transparency Act (CTA) and various local laws. For many years, boards of directors in cooperative apartments had unfettered discretion to turn down prospective purchasers. Fair housing laws have effectively restricted that authority to financial issues. Statutes that were intended to protect ex-offenders from housing discrimination have also made it difficult to avoid ex-offender purchasers except for some on the sex offender registry. If a board is considering rejecting a proposed purchaser for any reason, the file should be fully documented with the support of the board’s counsel.
The CTA is currently being enforced against international non-domestic entities. However, pressures from law enforcement for more disclosure of ownership of companies in the cryptocurrency and money-laundering space may force a change in the enforcement of the CTA. For boards, this will require new disclosures and reporting requirements. Many businesspeople who make desirable board members may pass on the opportunity if the CTA takes effect.
Boards are also facing unfunded mandates for energy efficiency and other obligations from local and state governments. These demands are clashing with the second group of issues facing boards, namely the rising costs of maintenance, utilities, insurance and property taxes. Boards struggle to raise money from unit owners, because routine maintenance costs are rising and Manhattan-based cooperative and condo buildings are paying hugely disproportionate property taxes.
When a middle-value condo or coop unit in Manhattan pays five times more in property taxes than a similarly valued home in the outer boroughs, and amounts equal the property taxes paid by high- value brownstones, the system is broken. It also means that unit owners are so overtaxed that they have no stomach for a board on a spending program, even to support climate initiatives.
Against this backdrop, boards are struggling to raise maintenance to cover staff, utilities and maintenance. Whether The Real Estate Board of New York (REBNY) is serving the interests of coop and condos is questionable. REBNY seems to serve commercial buildings, not residential buildings.
Boards need flexibility to reduce staff, particularly as energy efficiency reduces workload. For example, the amount of time dedicated to changing light bulbs has decreased over time given the longer life of LED bulbs.
To date, no effort has been made to allow boards to modify staff as needs change. Obviously, this has to happen at some point. Utilities are costly in part due to property and other taxes charged by local and state government. For overtaxed Manhattan apartment owners, it is adding insult to injury. It is another example of the broken property tax system in New York City.
Board members are facing contentiousness within their buildings as well, including new demands on buildings for access agreements that were not favorable to coops and condos and claims of breach of fiduciary duty and liability.
Consider that some buildings are older and were built under older codes. Disgruntled unit owners or shareholders can make complaints of non-compliance with current code in buildings that cannot comply based on the physical attributes of the building.
Sadly, NYC uses the complaint system as a supplemental tax system, so buildings which are subject to the 1968 or 1938 codes for violations see fines, not constructive assistance from the New York City Department of Buildings. This only emboldens unreasonable demands, increases the insurance premiums for buildings and provides no enhanced safety or operations.
Why anyone wants to be a board member in this environment is a mystery.
This column presents a general discussion. This column does not provide legal advice. Please consult your attorney for specific legal advice.
Carol A. Sigmond
Partner
Nossaman LLP
12 East 49th Street, 22nd Floor
New York, NY 10017
