Page 8 - New England Condominium March 2020

8 NEW ENGLAND CONDOMINIUM -MARCH 2020 NEWENGLANDCONDO.COM evenly applied. Otherwise, your good in- tentions could turn into a discrimination claim or a lawsuit. Exercising care and consideration in drafting rules to protect all owners and residents will help, and is in the best interest of the community as a whole. Keep Everyone Informed The media is saturated with national and local information—and misinfor- mation—but what about information on your particular association? Let your owners and residents know that the board and management are at the helm, steering the ship with confidence, and with all of their interests in mind. If your associa- tion has a website, post regular informa- tion on the rules, rule changes, places that you’ve installed hand sanitizer, cleaning processes that are being employed in the common areas, and anything else you’re doing as a board or management team to protect your associations during this un- settled time. Take Charge of the Common Areas Your board is charged with governing the community and the common areas. If the common areas are not properly maintained – including being thoroughly cleaned on a regular basis – it poses a risk; not only to owners and residents who may contract the virus, but to boards and management who may face claims of neg- ligence in performing their obligations to the community, and/or breaches of their fiduciary or contractual duty. So take a hard look at what is being done to maintain your common areas. For example, the board and manage- ment might review how frequently any shared community areas such as a club- house, pool, gym, and so forth are being cleaned. In addition, your board should review how well the shared areas are be- ing cleaned. Further, the association may want to assess whether additional hand sanitizers, automated soap dispensers or disinfectant wipes should be placed in common areas. Your board may even want to consider shuttering common ar- eas or amenities on a temporary basis. If an individual suspected or con- firmed to have COVID-19 has been in the common area, it is recommended by the CDC to close off those areas and wait up to 24 hours before beginning to clean and disinfect. Consider Alternative Ways to Meet In the interest of social distancing, boards should put off in-person meetings for the foreseeable future. Board meet- ings in New York can be done telephoni- cally, as long as everyone can hear each other. Online board meetings are a pos- sibility as well. Some products like Of- fice of the Board (www.officeoftheboard. com) allow boards to meet online, or even make board decisions without a meeting, provided that the decision is unanimous. Decisions that are unanimous can be made by unanimous written consent, and don’t require a board meeting. Where a meeting is required, consider having your management or the board members coor- dinate a telephone call or a video-confer- ence so the board can get together virtu- ally and make decisions. Staying out of meeting rooms — as well as each others’ apartments —for the time being is crucial to slowing the pace of infection and keep- ing ourselves and each other healthy. Postpone Annual Meetings If your association’s annual meeting is coming up, postpone it. If a prompt unit owner decision is absolutely necessary, there are electronic voting applications that allow for owners to vote electronical- ly from wherever they are. Like in-person board meetings, annuals should be post- poned, and an alternative way of having electronic voting should be explored. Your counsel should be consulted about whether the new laws in New York on electronic voting apply to your associa- tion, or whether you need to amend your bylaws to allow electronic voting. If your association can vote electronically now, it should be explored, since a congregation of owners is not necessary. Avoid Liability At this point, it is inevitable that at least one resident in your building or community will contract the virus, if they haven’t already. Resident-to-resident, resident-to-staff (and vice versa) trans- missions are also likely as the pandemic runs its course. Illness and safety are al- ways concerning and heighten the stakes around necessary everyday operations. However, in the end the board is charged with operating the association, maintain- ing the common elements, and doing its best to be reasonable and act in the best interest of the association. In rulemak- ing or taking action, be considerate —yet protective—of the entire community you represent. As a board, exercise your busi- ness judgment collectively. Do not make decisions out of self-interest—and when in doubt, consult your professionals. In sum, when faced with a health crisis like COVID-19, the association’s board and management should be pro- active in thinking about upcoming an- nual and board meetings, community events, etc. We recommend keeping ev- eryone informed about what your board and management are doing to protect the community from the virus. Commu- nity associations should also review their rules and may wish to consult with legal counsel regarding their options under the law and governing documents of the as- sociation. n Joseph Colbert is a partner at Colbert Law with offices in New York and Connecticut. CORONAVIRUS... continued from page 1 Manhattan, Westchester, and Long Island, New York, “A distressed property is gen- erally the result of fi scal mismanagement. For example, boards may choose to under- take the wrong projects at the wrong time. Th ey may decide they prefer to renovate the lobby when in fact they should be up- grading their boiler. Or they may decide to put in solar panels when they should be converting from oil to gas.” And those aren’t just theoretical, Halper is quick to note. “Th ese are real examples that we’ve encountered over the years.” Nick Ruccolo, a vice president with Crowninshield, a real estate management fi rm in Massachusetts, also sees fi nancial mismanagement as the underlying cause of distress for condominium communi- ties. “Th e problem we most typically run across,” he says, “especially with new ac- counts, is deferred maintenance. Many items that should have been done have been deferred, or passed along. Th ey didn’t start as emergency items, but over time they became emergency items. Typi- cally then, a large assessment will have to be put in place to take care of it. We had a situation like this where all the roofs—and the common roads—of a community were so neglected, they had to be done at the same time.” Even without an emergency rearing its head, buildings age, and mechanical sys- tems and equipment become obsolete. It’s a fact of life for property owners and man- agers and can be predicted to a certain degree if community administrators un- derstand the concept of depreciation and earmark funds accordingly. It is the re- sponsibility of a co-op or condo board and its management to properly prepare for the necessary maintenance and ultimate replacement of building systems. A board that consistently defers regular mainte- nance or opts for a cheap fi x rather than a more long-term solution will ultimately land the property in distress. Like a bridge that hasn’t been properly maintained, the overall physical plant could come close to collapse, literally and fi guratively. Mortgages Less common these days, but a very se- rious problem during the Great Recession a few years ago, was co-op buildings de- faulting on payments for their permanent underlying mortgages. As a reminder: co-op corporations own their properties as fee simple estates, and as such can— and do—place large mortgages known as underlying permanent mortgages on their buildings. Th e debt service on these mortgages is paid monthly and pro-rated among the shareholders. In certain cas- es—if there are large numbers of subten- ants or vacant units, for example, and the primary shareholders aren’t paying their monthly maintenance charges on time (or THE CHALLENGES... continued from page 1 at all)—the board may not be able to meet its obligations under the mortgage. Aft er 90 days, the lender will place the mortgage in default and begin the process of fore- closure. If the property is foreclosed, the co-op will be wiped out—and all share- holders will lose their equity. Halper explains that the key to avoid- ing such a problem is to limit the number of subtenants in the property, which can help keep shareholders committed to their investment. He says it’s also advisable to contact your lender in the event a serious fi nancial or cash-fl ow problem presents itself to head off a default and foreclosure action. Th e last thing the bank wants is the property. Interpersonal Confl ict While perhaps less obvious at fi rst than fi nancial or physical breakdowns, a break- down in interpersonal cohesiveness, oft en characterized by confl ict between individ- uals or groups within the community, can be just as detrimental to the health of a co- op or condo. Th e inability for a board to make decisions due to confl ict or constant infi ghting among diff erent factions within their community can grind the eff ective operations and management to a halt. “Interpersonal problems between resi- dents and the board, between board mem- bers, and between groups of residents happens all the time,” says Ruccolo. “You have to play the role of conciliator, to get the opposing sides to reach compromise. It’s not unlike the politics of today. You have to fi nd common ground, and that’s really hard to do.” Halper mentions situations wherein an individual person can get control of the board and will try to run the build- ing or association like their own personal fi efdom. Th at kind of inappropriate, self- serving control can lead to a complete breakdown in communication, which in turn can make a manager’s job nearly im- possible. Avoiding Trouble—and When to Walk Away A fi nancial pitfall can be dodged if caught early enough, before the dollar amounts involved creep too high for the individual shareholders or owners to han- dle. “Completing a regularly scheduled reserve study, and maintaining both the reserves required therein and completing the work required as scheduled, will avoid the possibility of the property becoming distressed,” says Ruccolo. Halper agrees, and adds that “the key is to keep up with both fi nancial and main- tenance needs. Raise maintenance annu- ally to keep up with increases in operating expenses and other costs. Cheapness is at the heart of the problem.” And sometimes, a board’s inability— or unwillingness—to handle its business forces their management company to cut ties and leave the community to its own continued on page 10