If you're lucky, you'll never have to deal with a co-op board in your life. Though housing cooperatives, co-ops for short, are found in large numbers in urban areas such as Atlanta, Chicago, Detroit, Miami, Minneapolis, New York City, San Francisco, and Washington, DC, according to the National Association of Housing Cooperatives.
Buying in a co-op means literally going into business with anywhere from several to 100-plus strangers. Then there's the all-powerful and fear-inducing co-op board of directors. It's not unusual for individual members, or even entire boards, to service their own agendas (renovation anyone?). Others can go on an extended power trip.
If co-ops sound like a recipe for an epic disaster, you're right. And here are five to mull over.
Wasting shareholder money
A co-op in a landmarked section of Queens, NY, was in need of TLC -- so some shareholders formed a restoration committee with the board's unofficial blessing. First up, "we ripped out the plastic paneling in one elevator and installed new wood paneling," recalls shareholder Michael H.*, 76.
After completion, one board member objected over concerns that the paneling wasn't fireproof. Though the committee held a demonstration trying -- and failing -- to set the wood on fire, "that wasn't enough," says Michael. "The board tore off the new paneling. Then spent $9,000 to put similar paneling back on."
Legal tip: "Boards should act only on the advice of expert consultants -- like architects and engineers -- not on their own emotional impulses," says Aaron Shmulewitz, partner at Belkin Burden Wenig & Goldman. "It's likely that such a consultant could have advised the board as to whether the desired wood paneling was or was not fireproof, thus saving the co-op significant sums in wasted expenses."
Making it personal
Claire W. of Brooklyn, NY, was quite close with her neighbor after a decade of living next door, even sharing dinners and watching favorite TV shows together. But when the 44-year-old's neighbor became board president, an odd power struggle ensued.
"We disagreed about everything from upgrading common areas to what our reserve fund should be used for," says Claire. "One disagreement became so heated, we yelled obscenities and didn't speak for almost a year!"
Legal tip: Keep personal feelings out of co-op discussions.
"Board members should serve their constituents, not their own agendas and egos," says Shmulewitz. "Nonboard members" -- who disagree with their board-friends' objectives -- should realize "those positions are almost always formulated based on a perception of what's best for the co-op and the majority of its residents."
Creating whimsical rules
When a flood devastated 53-year-old Robert W.'s unit, the Brooklyn resident was satisfied with his insurance settlement … until his board got involved.
"Our documents have a proviso that insurance checks be made out to the shareholder and co-op," he says. Though Robert had finished repairs while awaiting the check, the board -- per its lawyer's advice -- insisted on "a mold check from a licensed New York inspector before releasing the funds," he says. "This wasn't an existing rule and felt arbitrary -- were they going to make me replace the new walls if they found a spore?" After months of heated arguments, Robert discovered there is no such thing as a "licensed" mold inspector in New York. He received his check, but not without months spent battling with the board.
Legal tip: "In terms of getting compensation for not having his check … the shareholder should weigh the risk of attempting a measure of damages against irritating the board," says attorney Meg Goble, who has over 30 years of real estate experience in the representation of cooperative and condominium boards. "If he needs to do alterations or ever wants to sell … boards have long memories."
When one midtown Manhattan co-op resident had a conflict with her neighbor over loud music, the board president not only sided with the other resident, he went so far as to lie to protect his pal. "I called down to the doorman to complain about loud music, even citing what songs were being played," says Rob G., who swore off co-op living after this incident. "The music did not stop, I recorded the noise through the wall and went out."
He later sent an email to the board, citing the incident, the board president came back saying he was at the neighbor's apartment on that day and time, and there was no loud music playing. When the audio file was attached to the reply email, the board president admitted he might have made a mistake.
Legal tip: "Board members are fiduciaries and have a duty to act in the best interests of the coop in general," says Goble. "Taking up the side of a friend or due to personal bias is not appropriate."
If you suspect impartiality, then Goble suggests you document the circumstances giving rise to the suspicion with a letter to the entire board, including the allegedly impartial board member. If you prove your allegation, then fellow members have an obligation to rein in the rogue board member.
"If the impartiality is overt and clearly documented, the shareholder could also ask that the board member recuse himself/herself from future vote or decisions on the issue."
Robbing the kitty
With Manhattan real estate rents sky-high, one board member suggested they capitalize on the commercial spaces in their Greenwich Village co-op building. There was only one problem: The sponsor -- aka the entity that converts buildings into co-ops -- "had retained ownership of those units," says Joyce. H., 47. "The board member took the sponsor to court anyway over shareholder objections," she says. "The issue divided the building." Things got worse when the case was lost and the co-op found itself accountable for the sponsor's six-figure legal fees.
Legal tip: Here Shmulewitz again reminds boards to act on professional advice, "not on their own prejudices and impulses. [In this case] someone could have discovered pretty readily that the commercial space was not available to lease and that should have served as a brake." Condo anyone?
* Some names have been modified to protect the innocent from board retaliation.