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Click HERE to read the Memorandum filed with Senate Bill 2014.

Why Are So Many People Considering Transfers to Trusts and LLC’s?

1. Speed up Estate Transfers – Transfers to trusts avoid delays in probating assets under a will; a Trust is also easier to amend and provides more flexibility in changing beneficiaries than wills do

2. Tax Planning. – Transfers to family managed LLC’s allows gifting of minority interests while you continue to control, and valuations of transferred interests are reduced because the transferee can’t make decisions. For high-end owners, transfers to Charitable Trusts may allow the owner to transfer appreciated assets, take certain immediate deductions and preserve future income.

3. Medicaid Planning. – To qualify for Medicaid if you need long-term care, you need to reduce your estate below very low federal maximums. [There is a 5+ year “Look-back” period for trust transfers, so need to plan early.]

4. Business Reasons – Structuring income and expense deductions for business, liability protection, e.g., to allow subleasing to a related entity or license agreements (e.g., for doctors).

Why Does Entity Ownership Matter to a Co-op or Condominium?

1. Liability of Owners to Association – Moving from having an individual at risk to having an entity at risk. The entity could be stripped of assets. Association wants to preserve access to assets of both the entity and the individual, to keep “skin in the game” for the principals of the owner.

2. Potential to Evade Restrictions on Transfers – Interests in the owning entity can be transferred without changing the name of the entity [Board of Directors of Big Deal Realty on Greene Street, Inc., v. 60G 133 GREENE STREET OWNER, LLC, 135 N.Y.S.3d 306, Slip Op. 50885 (U)]

3. Uncertainty about Who Has Authority to Represent Owner – Multiple officers, partners, etc. giving conflicting instructions.

4. Uncertainty about Persons Entitled to Occupy the Unit – If an entity owns, who can occupy? Employees? Officers and Directors? Members? “Guests” of Entity? Families of all of them? And for how long?

5. Preserve Sense of Community. Some Associations believe that having members who are not individuals erodes the sense of community of the building as in “we’re in this together.”. Some are conceding to trusts, but not LLC’s.

6. Liability of Owners to Neighbors. Unlike the Association, other owners can’t demand that an individual guarantee the obligations of an entity owner to them. Therefore an entity owner has reduced liability exposure to neighbors.

Where Does a Co-op or a Condo Get the Power to Regulate Ownership and Transfers?

1. Co-op – Easy. Board has right to approve or reject any transfer in its discretion, so can set any conditions it wishes for approval.

2. Condo – Less obvious. Need to review the language of the By-laws relating to the permitted use of the Unit, the occupancy of a Unit, the powers of the Board, and the scope of the Board’s right of regulate leases.

– A Unit can only be used for “residential occupancy.” How can an entity “occupy” anything? Therefore any use of a Unit by an individual is governed by the limits on permitted occupancy and leasing in the By-laws.

– For example, if an employee of the entity Owner stays overnight, how is that different from an AirBNB rental? Occupancy of an entity-owned Unit by a natural person is a form of lease or license, regardless of how low the rent payable may be. Therefore the Condo Association can exercise its right of first refusal or claim a violation of short-term rental laws in multiple dwellings.

– This option might not be available to every Condominium. Some Condo documents specifically state that if the unit is owned by a non-individual, it can be occupied by the principal, officers, or even employees. In those cases the Condo needs to determine if those rights are being abused, e.g., for weekly stays by different employees visiting the City, or by extended family members of a principal. Transient occupancy by unspecified third parties may violate the spirit of the Condo documents, if not the express language.

ASK YOUR ASSOCIATION’S LAWYER TO CHECK YOUR CONDO DOCUMENTS.

What Should a Board Require When Someone Seeks to Transfer to an Entity?

General Principle: Seek to conform the rights of the entity to the rights of individual owners.

1. Occupancy Agreement.

a. Specify who is permitted to live in the Unit. Check your governing documents. They should parallel the rights granted to individuals, e.g., immediate family, one other adult, parent or child. Check your policy about allowing occupancy by a family member without the individual owner being present, e.g., children buying for parents or vice versa, and conform if possible.

-Specify when are changes of occupants are subject to Association notice or approval. How do you treat guests, or roommates of owners? Again, conform.

b. Specify conditions for transfers that either trigger or do not trigger Association approval or waiver rights. Make sure that transfers of majority interests or control of the entity owner are considered transfers of the Unit. Determine which transfers require consent or submission of waiver request under governing documents (and which do not) and conform. Consider what happens to the entity upon the death of the principal. What procedures are followed, and what rights of approval or review does the Association have?

c. Technical points: Jurisdiction and venue, authority to act on behalf of the entity, other technical legal issues.

d. The Agreement terminates upon transfer of the Unit to a natural person.

e. Clarify who has the authority to act for the Owner, to avoid conflicting instructions.

f. For trusts, you want preserve the Association’s access to Trust assets. Many trusts have “spendthrift clauses” that prohibit creditors from accessing the interest of a beneficiary in a trust. If the Trustee is a beneficiary, this could affect the Co-op. In contrast, a Revocable Trust does not limit access by creditors.

2. Personal Guarantee. This is more customary for Co-ops than for Condos, since Co-ops can impose arbitrary conditions for consent. The principal of a prospective owner might object to giving a personal guarantee to a Condominium, but feel free to ask for one.

3. Acknowledgment – That the entity is subject to the provisions of the governing documents; that in case of a conflict between the governing documents and the Trust or Operating Agreement, the governing documents will prevail; and that transfers are subject to the requirements of the governing documents. A little bit of belt and suspenders, but makes clear what the entity is agreeing to.

Conclusion: Should Associations be Concerned with Transfers to Entities? Are the Risks to the Association Materially Increased by Entity Transfers?

1. For the most part, no. The Co-op Board retains a first lien against the apartment, and recourse against the guarantor. The Condo Board retains the same rights against the unit owner as it had against any owner before, although unless a guarantee has been signed, the assets of an entity owner could be reduced more easily than the assets of an individual owner. (But remember that the Condo never had the right to prohibit such a conveyance; most of the time its legal recourse arises post-transfer.) The Occupancy Agreement is a useful tool to help to clarify the parties’ respective rights and obligations.

2. One subtle potential disadvantage is not to the Association, but to neighbors. Unlike the Association, other shareholders or unit owners can’t compel the new owner to give personal guarantees, so in the event of a conflict, they may have reduced recourse against the entity owner. They can’t pierce the corporate veil if they have (say) a damage claim and the unit has no equity. But this is simply an argument for the Association to require all owners to carry homeowners insurance.

In sum, Associations must be prepared for more of these requests, especially as their population ages. There are practical and legal ways to deal with them.

For more information, contact:

Ken Jacobs
kjacobs@sbjlaw.com

A.J. Morgenstern
ajmorgenstern@sbjlaw.com

At long last, Co-ops are now officially allowed to conduct shareholder meetings electronically, permanently extending the current law that expires on December 31st. As before, the Board of Directors must provide a platform that provides shareholders a reasonable opportunity to participate in the proceedings, to verify that participants are shareholders of record, to vote, and to record votes.

Board members are also now permitted to give written consent electronically to Board actions without the necessity of a formal meeting. It appears that the intent of this new provision was to eliminate the requirement of unanimous consent of all members for a Board or committee action to be authorized without a formal meeting. (Otherwise this change seems superfluous.)

Note: For some reason, condominium association meetings were excluded from the amendment of the law, probably just an oversight. Bills have been introduced to correct this omission. However, Condo rights to have electronic meetings based on the COVID emergency remain in place until December 31, 2021.

Local 32BJ and the Realty Advisory Board have entered into a “Memorandum of Understanding” regarding the implementation of vaccine mandates at buildings. Employers may require employees to be vaccinated under the following timetables and protocols:

1. Employers must give employees one week’s notice of their intention to require vaccinations at the building;

2. By the end of that week, employees must:

(a) provide proof of vaccination; or

(b) provide proof of an appointment to receive a vaccination; or

(c) if the employee is seeking an appointment, either (i) provide proof of their request for an appointment, or (ii) request assistance to make an appointment; or

(d) If the employee is unwilling to be vaccinated, they must provide their reason for refusal. If they’re seeking a religious or ADA accommodation, the Employer must advise them how to seek such an accommodation.

3. No earlier than one week after the deadline for providing info (i.e., two weeks from the initial request for information), the Employer shall notify the Union and all employees of its written vaccination policy. Thereafter employees cannot be compelled to get their first shot of a 2-dose vaccine (or their only shot of a single-dose vaccine) sooner than four weeks thereafter, and their second shot sooner than eight weeks thereafter.

The Union and the RAB will consult about procedures for obtaining a booster shot, but employees will get paid time off to receive a booster.

4. Pending Implementation of – or Instead of – a vaccination mandate, an Employer may require all unvaccinated employees to undergo PCR testing on non-work time up to 2 times per week, and to submit the test results to the Employer. (The PCR test is a diagnostic test, not an antibody test.)

5. An employee who is not vaccinated by the required dates may elect (a) and unpaid leave of absence for up to 4 months; (b) placement on a recall list (for similar positions) for six months, and provided the Employee is vaccinated; or (c) separation for non-disciplinary reasons.

6. Superintendents who seek a leave or furlough but whose absence will hurt the building may arbitrate the dispute.

The full Memo of Understanding can be found HERE.

If you’re a non-union building, or have a different union, you are not obliged to follow these guidelines. Regardless, we recommend that you establish and circulate an employee vaccination policy for the protection of your residents as well as your employees. Undoubtedly your owners also will want to know what the Board is doing.

The New York State Legislature has considered the pressing problems affecting community associations and in response, has passed at least four new bills affecting condominiums, cooperatives and homeowners associations that are either awaiting the Governor’s signature or have been signed into law.

“PREVAILING WAGE” BILL SIGNED INTO LAW.

Governor Hochul has signed into law the bill conditioning receipt of the NYC co-op/condo tax abatements on payment of “prevailing wages” to employees. Owners in the following categories of cooperatives and condominiums will not receive their customary tax rebates unless their associations pay the “prevailing wage”: (i) buildings with assessed valuations averaging more than $60,000 per unit and having 30 or more apartments, and (ii) all buildings with average assessed valuations exceeding $100,000 per apartment. The “prevailing wage” can be obtained from the New York City Comptroller’s Office. For more details, click HERE to see our Client Alert from July 12, 2019.

HEALTH AND ESSENTIAL RIGHTS ACT (“HERO ACT”) NOW EFFECTIVE.

The New York Health and Essential Rights Act (“HERO Act”) mandates extensive new workplace health and safety protections in response to the COVID-19 pandemic. It applies to any person or business entity with at least ten employees.

Section 1 of the Act required the Commissioner of Labor to publish model airborne infectious disease exposure prevention standards and protocols within 30 days, and employers to adopt and implement protocols meeting or exceeding those standards within the next 30 days. Those model plans were published on July 6, 2021 (click HERE). New York employers had until August 5th to adopt them, and until September 7th to post and distribute them to their employees and incorporate them into employee handbooks. Section 1 also prohibits discrimination and retaliation against employees for exercising their rights under the Act or the employer’s plan, reporting violations or exposures, or refusing to work under conditions inconsistent with law or the plan (with certain exceptions).

Section 2 of the Act, effective on November 1, 2021, requires covered employers to permit employees to establish and administer a joint labor-management workplace safety committee to raise health and safety issues, review policies relating to occupational safety and health, with certain meeting and training allowances.

Covered employers who have not done so should adopt an airborne infectious disease exposure prevention plan immediately and disclose the plan to employees. Covered employers should be prepared to set up workplace safety committees starting November 1, 2021.

SOLAR POWER ACT.

The legislature has passed the “Solar Power Act,” which declares that “unreasonable” restrictions imposed by Homeowners Associations on installation of solar systems on owners’ property were “contrary to public policy.” A restriction that “inhibits the solar power system from functioning at its intended maximum efficiency” or increases the system’s installation or maintenance costs by more than 10% of its total installation cost is deemed to be “unreasonable.” Condominiums and cooperatives are excluded from its application as long as the property where the owner wishes to install solar equipment is owned in common with others.

We think the legislation is misguided as written. Most solar power systems are installed on roofs. Although many HOA homeowners may own their roof, usually they are not responsible for repairing or maintaining it. In most HOA’s with attached homes (and even many HOA’s with stand-alone homes) the HOA has to repair and maintain the roof. Installing a solar photovoltaic system on a roof usually voids the roof warranty; it certainly makes repairs and maintenance much more difficult. Associations need to make sure that owners are held responsible for the costs stemming from their installations, without “unreasonably” restricting them.

LEGISLATURE EXTENDS EVICTION MORATORIUM UNTIL JANUARY 15, 2022

By now most readers know that the moratorium on evictions has been extended through January 15, 2022 in order to facilitate distribution of rental aid to lessees suffering financial hardship due to COVID. We hope that NY State substantially improves its distribution system so that low-income shareholders who have defaulted in their maintenance charges due to COVID hardship will be able to obtain needed rental assistance, and their landlords sorely needed funds.

IMPORTANT – CONDO COMMON CHARGES ARE NOT RENT. Many associations believe that they are barred from seeking collection of arrears from unit owners who have defaulted in paying common charges, or from accepting partial payments of common charges from owners in arrears. That is not true. Common charges are not rent. The moratoriums on non-payment actions or evictions during COVID do not apply to actions to collect common charges. (Nor are Condominiums considered “mortgagees” under the various statutes, so they are not barred from foreclosing on their liens for common charges.) Furthermore, unlike acceptance of rent, acceptance of common charges by management does not void an action by a condominium association to collect a money judgment or to foreclose on its lien for common charges.

The Westchester County Board of Legislators recently amended Local Law 2018-11 to impose new timetables and guidelines on Co-op Boards when developing application forms for potential purchasers, reviewing completed purchase applications, and accepting or denying applicants. The law became effective August 1, 2021, and implementation became mandatory August 16, 2021. Although this law applies only to Westchester, similar laws have been introduced in New York City and New York State for years. Given current trends, the Westchester law may foreshadow what ultimately may be approved in other forums.

NEW REQUIREMENTS FOR PURCHASE APPLICATION FORMS

The Cooperative Disclosure Law now requires that all co-op purchase application forms contain a cover sheet including the following language:

“Article II of Chapter 700 of the Laws of Westchester County, known as the Westchester County Fair Housing Law, prohibits discrimination in housing accommodations on the basis of a person or persons’ actual or perceived race, color, religion, age, national origin, alienage or citizenship status, ethnicity, familial status, creed, gender, sexual orientation, marital status, disability, source of income, or status as a victim of domestic violence, sexual abuse, or stalking.

“Section 700.21-a of the Westchester County Fair Housing Law governs applications to purchase shares of stock in cooperative housing corporations, and applies to this application. Under this section, the cooperative housing corporation is required to comply with the following deadlines:

1. “Within fifteen days of the receipt of this application, the cooperative housing corporation must either acknowledge that it has received a complete application, or shall notify you of any defect in the application.
2. “If you are notified of any defect in the application, within fifteen days of the receipt of the corrected application the cooperative housing corporation must either acknowledge that is has received a complete application, or shall notify you any defect in the application.
3. “Within sixty days of receipt of a complete application, the cooperative housing corporation must approve or deny your application, and provide written notice thereof.
4. “If your application is denied, the cooperative housing corporation is required to provide notice to the Westchester County Human Rights Commission, including your contact information.”

In addition, the application forms must list the “minimum financial qualifications that a prospective purchaser must meet to qualify to purchase the shares,” including the corporation’s preferred minimum income, total assets, and credit score of the purchaser, as well as the preferred maximum debt to income ratio and percentage of purchase price being financed.

Boards must set a minimum (or maximum, as applicable) for these criteria, but they have full discretion as to what the criteria may be so long as they are listed in the application.

REVIEW OF APPLICATIONS; NOTICE OF REJECTION TO HRC

Upon receipt of each co-op purchase application, the Board of Directors must inform the purchaser whether the application is “complete” within 15 days after receipt. If the application is incomplete, the Board must inform the purchaser of each “defect” in the application. Upon receipt of any revised application the Board then must within another 15 days either acknowledge receipt of a complete application or inform purchaser of “any uncured defect”.

Once a “properly completed application” is submitted by the purchaser, the Board has 60 days to send the purchaser a notice of rejection or approve the application. If the purchaser’s application is rejected, the Board of Directors must provide a “notice of rejection” to the Westchester Human Rights Commission (the “HRC”) within 15 days from the date purchaser was notified of the denial of their application.

The Notice of Rejection sent to the HRC must include the following:

1. the full legal name and address of the Cooperative Housing Corporation;
2. the full address and unit number of the unit that had been applied for;
3. the full names, addresses, telephone numbers, and e-mail addresses (if available) for the denied applicant(s) and seller(s);
4. the full names, addresses, telephone numbers and e-mail addresses (if available) for all legal counsel and real estate brokers involved in the rejected transaction;
5. the date of receipt of the initial application;
6. the date of receipt of the completed application;
7. the date(s) of any interview;
8. the date of rejection; and
9. the reason for rejection.

Click HERE to view the “model” Notice of Rejection created by the HRC.

Note: It does not appear from the statute that the prospective purchaser must be notified of their denial using the HRC’s form of Notice of Rejection. The purchaser can be advised of acceptance or denial using the Cooperative’s customary form. Of course, if a purchaser raises an issue with a denial, we expect that the HRC will make the form available to the complainant.

FAIR HOUSING LAW TRAINING

The new law now requires existing Directors to complete two (2) hours of fair housing training every two years. Further, each new Director must complete a minimum of two hours of training within 60 days after joining the Board. The Cooperative must maintain records of every member’s training and must make the records available to the HRC upon request. The HRC is responsible for publishing an outline of minimum standards for the training and these standards were to be available by August 16th . (As of the date of this publication, they were not available.)

PENALTIES FOR NON-COMPLIANCE

If the Cooperative does not comply with the new housing law, the noncompliance could result in a fine of $1,000 for the first offense, $1,500 for a second offense and $2,000 for a third offense. The HRC has 1 year from the date of the violation to bring these charges.

The new law has given the Westchester Human Rights Commission greater power to scrutinize purchaser rejections by Boards of Directors. Boards must now be more transparent with their purchase requirements, timely with their decisions and correspondence with prospective purchasers, and (after a decision is made), ready to justify their reasons for the rejection of a buyer. Co-op Boards that do not comply with the new law are at risk of incurring monetary penalties and facing possible legal action from the HRC.