How Can We Avoid Threats of Discrimination?
Q. We like to be very selective when we screen potential members to be sure we get responsible people moving into our co-op. However, recently a disgruntled person whose application we rejected has threatened to sue under the Fair Housing Law. Can you explain how the Fair Housing Law relates to co-ops and how can we continue to be selective while avoiding the threat of lawsuits?
A. The Fair Housing Act generally prohibits discrimination in the sale or rental of housing or in the provision of services and facilities in connection with housing, because of race, color, religion, sex, familial status, national origin, or disability. This law applies to cooperatives as well as rental housing.
Typically, in a discrimination case, the disappointed applicant must establish only that he or she was financially capable of purchasing (or leasing) and maintaining the housing in question; the burden then shifts to the cooperative to establish that other reasons exist to justify a rejection of the application.
It is not unusual for a disappointed applicant to claim he or she was discriminated against. This possibility should not deter boards from fulfilling their fiduciary obligation to evaluate prospective purchasers or renters, but it should be a reminder that the board should exercise sensitivity in evaluating applications and interviewing applicants. Neither the application nor the interview should include inquiry into sensitive areas, as those relating to race, color, religion, sex, familial status, national origin or disability.
Moreover, the board's rules concerning applications and interviews should be applied evenhandedly, that is, the board should not apply different sets of rules to different applicants. For example, one New York cooperative, which typically did not require a board interview for a sublet applicant, recently found itself in serious hot water for, among other things, requiring a board interview when it learned the applicants were an interracial couple. Boards should also act promptly upon applications. Many applicants are put off by a delay in processing their application, in scheduling an interview or in issuing a determination on the application. In the face of delay, applicants become suspicious that the board is not acting in good faith.
No guarantee exists that a board will be able to avoid all discrimination claims; being sensitive, applying application procedures evenhandedly, and acting promptly should, however, help discourage claims and, when those claims do come, help the board to defend successfully against them.
Phyllis H. Weisberg, Esq.
Kurzman Karelsen & Frank, LLP
New York, New York
Back to top>>>
A. When screening potential members, one must remember that as long as the screening process is utilized and implemented without regard to race or color, national origin, sex, familial status, religion, and disability, it is okay to rent that unit to the individual selected. The qualifications and application requirements are set forth by the owners/management of a complex. The same selection criteria must be utilized for everyone making application and should be based on the individual's ability to meet the application requirements.
Cooperatives operating on the premise the they can be "selective" in conducting business may find themselves having a fair housing complaint filed against them. If someone makes application and meets the requirements, the unit should be made available to them. Not making units available to all qualified individuals is still a common problem across the country. If someone has threatened to sue under the fair housing law, in many cases more than not, it means that person was rejected and is unhappy. If a complaint has been filed, the investigative entity will request that you provide information pertaining to the merits for the rejection. Providing them with the information utilized for the rejection of an application should suffice, if there are no other variables involved. Rejection is part of the process and if the person does not meet your requirements it is okay to reject an application.
Co-ops are bound by the same fair housing law as all other housing operations where units are bought, sold, or rented. The fair housing law states it is illegal to refuse to rent, sell, or deal with an individual because of his or her race or color, national origin, sex, familial status, religion, and disability. It is also unlawful to discriminate in terms or conditions of sales, rental, or services based on the same reasons. Records, applications, references, and other information obtained by your company to select applications should be a standard understood process throughout your organization. The application process should be discussed at staff meetings, board meetings, training programs, and during orientations.
It is key to remember that if you are consistent with your screening process giving everyone the same opportunity, a threat of discrimination becomes a non-issue, because your organization has a process in place that is being implemented consistently with everyone seeking a unit.
Thomas H. Randolph, Jr., Executive Director
Kansas City Fair Housing Center
Kansas City, Missouri
Back to top>>>
What Is Our Board Up To?
Q. I've been a shareholder in my co-op for over 20 years. Recently I've become suspicious about what the board has been doing. All of their meetings are closed meetings. Based on some rumors that I've heard, it seems they may be talking about some big changes. I've asked to review the minutes from some of the recent meetings, but the board has refused my request. As a shareholder, shouldn't I have the right to at least see minutes of board meetings, especially if I'm not actually allowed to attend the meetings?
A. There is not necessarily anything sinister about the board holding closed-door meetings. In New York, where I call home, the law does not require that shareholders be allowed to attend, and honestly, I don't know any buildings where the board voluntarily lets owners in. Other states are more democratic. Hawaii lets shareholders show up and participate. Florida not only mandates that board meetings be open to all owners, but allows them to speak their mind on agenda items-even videotape or record the session for posterity.
Assuming you live in an open-door policy state, and are being denied access, I'd first ask one of my friendly directors why. If no satisfactory answer is forthcoming, take your complaint to the managing agent or (while it may be unorthodox), the co-op's general counsel. If they have any sense, they will urge their client boards to obey the law. Be aware that executive sessions or meetings between the board and the building's counsel may be off limits.
Even if you aren't legally entitled to attend, state corporate law, generally, allows owners to inspect board minutes. Here in New York, that means you can go to the office of the managing agent and read what your directors have (or haven't) done. It doesn't mean that the board has to leave copies at the doorman's station or send you your own every month, as one of our shareholders demanded. If the board stonewalls your legitimate request, the remedy is a court order for inspection, though I'd first try some peaceful overtures. One logical (though not legally required) solution-which provides shareholders ease of access while addressing board concerns about confidentiality-might be to ask directors to "post" minutes on a secure building website.
Sylvia Shapiro
Lawyer, board president, and author of "The Co-op Bible"
New York, New York
Back to top>>>
A. A housing cooperative is first of all a corporation. By law it becomes a "legal person"-a creature of statute. It can own property, borrow money, sue and be sued, pay taxes, etc. Its powers-and limitations-are defined by statute, its articles of organization (i.e., its corporate charter), and its bylaws. In turn, the cooperative is owned by shareholders who reside at the cooperative. As shareholders the residents are entitled to vote for a board of directors who are responsible for the day to day operations of the cooperative. In carrying out these responsibilities the board members owe the shareholders a duty of loyalty and reasonable care. The duty of loyalty means that a board member must subordinate his personal interests to that of the residents. He or she should be asking himself or herself-is my vote or action in the best interest of the residents
at the cooperative?
In most states the board has the choice to hold closed meetings. Without this prerogative, shareholders could disrupt or interfere with the board responsibilities to supervise the day-to-day operations of the cooperative. After all, that is why the board members were elected-to act on behalf of the residents in dealing with these responsibilities.
There may be provisions in the co-op bylaws that state whether open meetings are always required or whether the board has the right to hold closed meetings. Notwithstanding the closed sessions of the board, residents as shareholders have a right to have access to the written minutes of the board meetings. This is also usually provided for in the bylaws of the cooperative.
But, if there are no minutes-there are other steps that the shareholder may take against a secretive board. For example, petition a special meeting of the shareholders to demand from the board an accounting regarding actions taken, financing, or some other matter that concerns the residents. The bylaws require a certain number of shareholders to sign a petition for special meetings. This is to avoid the petty complaints of one or two shareholders who contest just about everything and anything that comes to mind.
A shareholder could also run for board membership and, if elected, bring about reforms from the "inside." In addition, a shareholder could seek to change matters by proposing amendments to the cooperative's rules and regulations, or its bylaws.
What amendments would I suggest to deal with the question that prompted this article? Limit the terms of board members, require board or professionals to prepare periodic reports for distribution to the residents, have more frequent shareholder meetings, and reduce the number of residents required to maintain a quorum at shareholder meetings, to suggest a few. The strategy behind these changes would be to make it easier and more effective for the shareholders to make their board of directors more responsive to their concerns without interfering with the board's responsibility to manage the day-to-day operations of the cooperative.
Willard J. Stievater
Law Firm of McCullough, Stievater & Polvere, LLP
Charlestown, Massachusetts
Back to top>>>
Will We Still Be a Co-op When Our Mortgage Is Paid Off?
Q. What happens to a Section 213 cooperative when it pays off its mortgage and when HUD is no longer involved as the insurer? Does the cooperative simply go on as before, or is it possible that shareholders each own their apartment or townhouse at the time of the mortgage payoff. If neither of these apply, then what does happen? Our mortgage will be paid off in about three years and there is a lot of speculation as to the future. Any information you could provide would be appreciated.
A. Essentially, the cooperative simply goes on as before. It just gets to make choices about its operations and its structure without needing to answer to HUD.
The cooperative corporation is an ownership structure that exists quite independently from HUD or any relationship to HUD. Housing cooperatives existed long before there even was a U.S. Department of Housing and Urban Development.
When your cooperative corporation borrowed money to buy the land and construct the buildings you call home, it obtained mortgage insurance from HUD, which allowed it to get better loan terms and a lower interest rate. In return, it entered into a Regulatory Agreement with HUD and gave its lender a mortgage whose terms were written by HUD. The Regulatory Agreement and the HUD mortgage form gave HUD certain rights to regulate the cooperative's operations and the right to approve or disapprove any amendments to the cooperative's bylaws. Those rights will go away as soon as the mortgage is paid off. Nothing else will change unless the cooperative acts to make changes pursuant to the board and member democratic processes set forth in its bylaws and articles of incorporation and the state corporations law under which it was incorporated.
Examples of things your cooperative routinely does because it is required to under the Regulatory Agreement include: making deposits into a Replacement Reserve held by its lender and into an operating reserve under its own control; escrowing money on a monthly basis to pay property taxes and insurance; paying no more than a HUD-regulated maximum for property management services and using certain terms in its
property management contract; and completing its annual budget (and submitting it for HUD approval) at a certain time each year.
Terry Lewis, Esq., Vice President Cooperative Development
National Cooperative Bank
Washington, D.C.
Back to top>>>
A. Upon the satisfaction or refinancing of a previously FHA-insured mortgage by a Section 213 cooperative, other than the fact that the cooperative is no longer under the supervision of FHA/HUD, the corporation continues to function as a cooperative, e.g. the corporation is the owner of the property and the shareholders continue in occupancy of their apartment under the provisions of the existing occupancy agreement without any change in legal status or proprietary interest.
I recommend that each "former" Section 213 cooperative to completely revise, not amend, the existing Certificate of Incorporation ("Charter"), bylaws, and occupancy agreement in order that the documents reflect current legal, financial, and social conditions as opposed to those which existed at the inception of the cooperative. As an example, the original "standard" occupancy agreement was designated as being subject and subordinate to the bylaws of the corporation and did not contain any provisions for amendment or modification unless consented to and approved by each and every shareholder of the corporation. The replacement of the
occupancy agreement with a current form of proprietary lease which may be modified or amended by a super majority of the shareholders provides flexibility in order to meet changes in the concept and philosophy of cooperative housing.
From a practical standpoint, the cooperative may opt to refinance the prior FHA-insured mortgage in a lesser amount in order to maintain adequate reserves for a long-range capital improvement program, upgrading the present condition of the property, addition of new facilities, etc. This is a matter for an in-depth discussion by the board of directors in conjunction with management and the corporate accountant. Assuming that adequate reserves presently exist and the property has been maintained to meet current standards, the sole windfall to the shareholders will be a substantial reduction in carrying charges upon the elimination of debt service payments and a substantial increase in the value of the shares of stock in the resale market.
Stanley B. Dreyer, Esq., Partner
Gallet, Dreyer & Berkey, LLP
New York, New York
Back to top>>>
Can My Cooperative’s
Board Force Members to Get Insurance?
Q.
Does the board of directors have the power to require
members and shareholders to get renter’s insurance?
A. Let’s begin by taking a look at the occupancy agreement between
the cooperative and each of its members. The occupancy agreement
is the document that describes the legal relationship between the
cooperative and its members, and it is binding upon the
cooperative as well as each member.
To find the answer to this
question, I suggest you consult the insurance clauses of the
occupancy agreement to determine whether there are any
requirements or restrictions related to homeowner’s or renter’s
insurance (known as form HO-6).
Many occupancy agreements grant the
board of directors broad powers to establish and enforce house
rules. If there are no restrictions in the occupancy agreement,
the board may create a rule that requires members to carry their
own personal insurance.
There are two approaches to doing
this. The first is that the member gets the insurance. If the
board adopts a rule requiring that members provide their own
homeowner’s insurance, the rule needs to contain guidance to
members and their insurance carriers describing minimum coverage
and minimum amounts to be insured. Finally, the co-op should back
up its requirement with a mechanism by which members provide proof
of insurance to management.
The co-op also will want to review
the pro’s and con’s of such a rule with its management team to
resolve issues of enforcement that need to be examined from a
management perspective. Once you decide that the co-op should have
such a requirement, consult your attorney for proper language in
which to frame your rule.
Co-ops also may have the option to
include basic HO-6 coverage in the monthly carrying charges. This
broad coverage insures that each member is covered without the
burden of management enforcement. NAHC has been active on this
issue for several years. In 1998, HUD issued a letter at the
request of NAHC that allows FHA insured co-ops to include basic
homeowner’s insurance coverage in the monthly carrying
charges.
Alex N. Miller,
Cornerstone Cooperatives, Atlanta, Georgia
Back to top>>>
A. The board may, as part of their general corporate powers pursuant
to the certificate of incorporation, bylaws, and proprietary
lease, adopt a rule that requires tenant stockholders to purchase
renter’s or tenant dweller’s insurance, insuring each tenant
shareholders apartment for bodily liability, including property
damage, fire, and extended coverage and charge the cost to the
general operating budget. In federal or state subsidized
cooperatives, this can be done in most cases only with the
permission of the oversight state or federal agency’s approval.
In cases where the cooperative
seeks to mandate by rule that the tenant shareholder purchase a
tenant or renter’s policy using their own funds, then in that
instance, the cooperative must do the following:
Look at its corporate documents,
e.g., the certificate of incorporation, proprietary lease, bylaws,
and oversight state or regulatory authority with administrative
rule-making power over a cooperative and determine if there is any
prohibition in the corporate documents and/or in the rules of the
federal or state oversight authority. If there is no prohibition
in the corporate documents or the federal or state oversight
authority regulations, then the cooperative’s board in considering
such a rule will have to perform the steps listed below.
Determine pursuant to the corporate
documents that:
a. It is
the tenant shareholder’s responsibility for repairs to the
building, common areas, and his or her dwelling unit caused by any
act of neglect, carelessness, or negligence of the
tenant/shareholder family, guests, employees, or other occupants.
b. The
cooperative corporation has an obligation if the building or
dwelling units are damaged by fire or other multi-peril to repair
the damage or replace the damaged portions of the said building.
In addition, if the said repairs are not completed and ready for
occupancy, rent or maintenance fees shall abate until the
apartment is rendered tenantable.
If, in fact, the above-mentioned
rights and responsibilities of the cooperative and/or tenant
shareholder are contained in the corporate documents, it would
seem that the board could enact a rule requiring each tenant
shareholder to maintain tenant dweller’s or apartment dweller’s
insurance. This rule would be subject, of course, to the law in
individual states and/or regulatory authority barring the same by
regulation, case law, or statutory law.
Albert F. Pennisi, Pennisi,
Daniels & Norelli LLP, Rego Park, New York
Back to top>>>
How do I produce a history book for my co-op?
A. Cooperative history books are as
varied as the co-ops they document, and as publishing projects go,
they are more complex than their nearest rivals, annual reports.
Every history book project, however, requires the same skills and
methods, but in different degrees according to the co-op and the
type of history to be produced. The basic steps in a history
publishing project include:
· Defining
the type of history—things, people, combination.
· Broadly
determining the type and source of history information available.
·
Defining the history book in terms of number of pages, pieces of
art, dimensions, and quantity required.
·
Identifying cooperative history experts and reviewers, and defining
the approval process.
· Establishing
a budget and schedule.
·
Writing a broad or conceptual outline, and from it, preparing a
detailed outline of the book.
·
Assembling, sorting, and cataloging source material from which to
write the manuscript, and ultimately, produce the book.
·
Assembling and captioning photographs, line art, and other
illustrations.
·
Researching publishing material and conducting personal interviews
to write rough draft of manuscript.
·
Reviewing and revising the rough into the first draft.
· Conducting
a formal review of draft and reconciling and incorporating changes
and corrections.
·
Beginning graphic design of history book.
·
Writing a final draft and assembling selected art for final review
and approval.
· Setting
type and preparing mechanics for printing of book.
·
Selecting a printer. Printing and delivering books. Distributing
books.
Of course, writing and publishing a co-op
history book is vastly more complicated than the basic steps above
suggest. If you simply divide these 15 steps into a recommended 36
months for such a project, you can see that you have only 2.4 months
in which to accomplish even the most rudimentary activities.
If your co-op has
an historical anniversary coming up in three years, you could
already be behind schedule for publishing your history if you have
not started by now.
Copyright 1995 by
Robert Duke
Reprinted with
permission from the 2000 Cooperative Communicator Association
Handbook
Lubbock, Texas
Back to top>>>
A.
Here are eight important points for successfully completing a
cooperative history:
1)
Form a committee with a good cross section of people to help
advise and brainstorm. Include someone from your communications
committee (who understands writing, printing, and is capable of
creativity). Other possible committee members include a board
member, someone from management, and a longtime cooperative
employee.
2)
Understand why your co-op is doing a history. Is it to
celebrate an anniversary? Honor an aging member or director? A
retiring manager? Did you just finish a rehab or beautification
project? Knowing why will keep you on track. This also will help you
decide if your history should be told through a book, a brochure, a
video, or a display.
3)
Determine who will:
-Research and
write.
-Design.
-Review and
proofread.
-Print.
-Be the “point”
person or designated approval person.
4)
Set your budget—and consider spreading out the book’s costs
over two fiscal years. Include these expenses:
-Design
-Printing (Number
of copies? Number of pages? Hard or soft cover? Four color or one?
Coffee-table quality?)
-Travel and phone
budget (for interviews, etc. )
-Book
distribution (postage, mailing covers, etc.)
5)
Set a schedule. Allow plenty of time for each step of the
process. You’ll want to start at least two years in advance,
depending on the scope of the project. Once the book’s completion
date has been determined, you’ll want to set a date for the first
draft of the manuscript to be delivered to your in-house reviewers.
Allow several months for the writing. Once the first draft is
delivered, you’ll need weeks to review it. Then you’ll need several
months more for other tasks such as revisions, design, writing photo
captions, and printing.
6)
Find out where historical material is located.
Develop a list
of people who should be interviewed. Start gathering material such
as old minutes, historical photos, old films and videos, news
clippings, letters, in-house publications, and annual reports.
7)
Decide when, where, and how the book will debut. You’ll want
to publicize this special project with a special occasion. The book
can make its first appearance at an event such as the annual meeting
or at a special dinner. Have the author present for book signings.
Invite your members, board members, employees, retirees, and
members of the media. A cooperative history
spawns a lot of goodwill
and favorable publicity. Take advantage of it.
8)
Determine (well in advance) how the book will be distributed.
Will you mail it to members? Will it be sold in museums or
bookstores? Will it be donated to schools and special organizations?
How many copies should be saved to give to new members and employees
as part of orientation? You’ll also need to budget for mailings
(including the mailing envelopes for the book). You may be able to
recoup some costs by selling the book.
Cathy Merlo
Merlo Company
Bakersfield,
California
Back to top>>>
Can a Co-op Ban Smoking Inside the
Home?
The New York Times carried a story about a
co-op deciding to ban smoking inside the apartmet by new
shareholders and requiring new applicants to declare that they are
non-smokers. Stuart Saft represents the co-op.
This has prompted some typical questions that we
can help you answer.
Is this the first instance?
Yes, to the best of our knowledge.
Is it a national trend?
No. One case does not make a trend.
Will other co-ops do this (ban smoking inside the unit)?
Other co-ops should do as this one did; listen to
members, determine if there is a problem, consult professionals,
and act in the best interest of the members.
Can condos and rental apartments do this?
Co-ops have the same application and enforcement
processes as rental apartments. Condos do not.
If co-ops can ban smokers, who else will they ban?
Co-ops must comply with all fair housing laws.
If co-ops can ban smoking in the apartment, what other behavior
can they regulate?
Co-ops can regulate behavior, through the
occupancy agreement, that needs to be regulated for the well-being
of the building and residents.
Back to top>>>
