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Managing Exterior Repair Projects; Advice from a Legal Pro

Managing Exterior Repair Projects; Advice from a Legal Pro 1000 1003 Matthew Adam Properties
BY C. JAYE BERGER, ESQ.

Leaks are a common problem in multifamily buildings, including co-ops and condominiums. It’s not unusual to see watermarks and dampness on plaster near or below interior widows, but since such infiltration usually stems from an issue on the exterior of the building – including the roof, cornice area, and other locations – repairs are neither easy nor quick, and are often left unaddressed until there is Local Law 11-related facade work being performed from the outside.

Homework Ahead of Time

Organizing and coordinating these repair projects requires a lot of time, energy and funding. In order to run smoothly, exterior work also requires a lot of planning in advance. Let’s say a building has leaks on the roof and cracks in various other locations. The building will need to first retain engineers to survey the building and ascertain the extent and scope of the work that needs to be done. In addition to a contract, plans and specifications will need to be drawn up, and bids will need to be obtained from contractors for pricing. The final plans will also need to be approved by and filed with the New York City Department of Buildings before work can legally commence.

Even after all of this advance work is done to prepare, it’s still quite common to find ‘hidden conditions’ on a project that require additional work – and money – that’s not accounted for in the plans or the budget. Therefore, when money is allocated for a project, additional funds must be set aside for these inevitable contingencies. Sometimes securing those funds means refinancing an underlying mortgage. In those instances, the advance planning may take over a year – which is why you sometimes see a building in obvious need of repair, and may wonder why no work has been done. The answer may be that the owner or board is still trying to arrange for the financing – though that’s not really an excuse for delaying needed maintenance or repair.

A Necessary Inconvenience

Since exterior repair work is by its nature hazardous and will take a while to complete, most buildings will need to have a sidewalk shed and other protective measures in place to protect the public and workers from any falling debris. Sheds are part of the overall cost of a project, and usually extend 20 feet or so past the building being worked on, onto the adjacent property or properties.

Despite the obvious need to ensure the safety of passers-by and work crews alike, sidewalk sheds are often met with hostility by neighboring buildings and commercial tenants who may claim that the structures block their view and/or signage, and discourage foot traffic.

Sheds are sometimes left in place for long periods of time while a board tries to obtain funding for the needed repair work, or sort out other administrative or bureaucratic issues. For example, in one case a sidewalk shed was interfering with the installation of a handicap access ramp by a commercial tenant – a mandatory safety measure conflicting with a mandatory accessibility measure. Sometimes disgruntled neighbors threaten to take such issues to court, but given the balancing of the issues and the need for such repairs, it’s doubtful a court would order the removal of a scaffolding until the exterior work is fully completed.

Papers, Please?

Among the key documents spelling out the scope, cost, and parameters of a facade project, there must of course be a fully thought-out, well-drafted and negotiated contract with the contractor hired to do the actual work. The contract should articulate the full scope of work, including plans and specifications, and the legal terms and conditions regarding the project. All too often, people show me what they are calling a ‘contract,’ but which is really only a list of the work they want to have done, and a payment schedule. More often than not, these schedules require payment at specific intervals – but don’t say a word about the amount or percentage of work that’s expected to be completed by that time. In a worst case scenario, payment could be due according to the contract, but the work itself could be way behind schedule. That should not be the case – and a competent, savvy consultant can catch (and hopefully correct) such discrepancies during the contract vetting process before the first worker sets foot on the property.

The documentation needed for a major exterior undertaking may also need to include an Access Agreement with neighboring buildings that might be affected by the project. Since this can take time to negotiate, the agreement should be part of the advance planning. The nature and location of the work may be such that materials may need to be moved up and stored on a neighboring roof for easy access. Permission for that type of access needs to be requested, negotiated by knowledgeable legal counsel, and obtained in advance in a written license agreement. Sometimes a fee may need to be paid to the neighboring building allowing the access; to encourage keeping the project on track, there may also be liquidated damages written into the agreement for each day the building needing access is late in completing the work.

Who’s in Charge?

Contracts and specifications for any type of exterior work should be prepared by legal counsel knowledgeable in this area, in conjunction with the project engineer. People need to know who is responsible for performing various tasks, by when, and who is responsible for payment. On one client’s project, the project engineer was supposed to obtain the work permit after the expediter filed the plans with the DOB. The engineer mistakenly thought the contractor was handling that, and valuable work time was wasted until the issue was resolved.

Another client once related that their contractor had failed to obtain a building permit – which the property manager did not realize until after the contractor had walked off the job. The client claimed they didn’t even know about the need for a permit until their new property manager pointed it out. There was also no electrical or plumbing inspection, which meant that the new contractors would need to open walls and perhaps redo already-completed work in order to pass inspection.

Along with vetting contracts, double- and even triple-checking permits and filing deadlines, consulting with your building’s insurance broker before an exterior project gets underway is a good idea as well. Having the right insurance in place that names the correct parties as additional insureds is essential. One building owner told me at a seminar I gave that just as work was ready to begin on their project, they realized they did not have an ‘action over’ insurance provision and had to delay the commencement to sort out obtaining it and who would pay for the additional cost.

The prospect of undertaking – planning, funding, and completing – a major exterior maintenance or repair project can definitely be daunting for any board, regardless of its level of experience. The above considerations are only a few of the many things that need to be kept in mind – but the guidance of experienced legal counsel can help formulate a game plan ahead of time, reduce the chances of something going wrong during a capital improvement project, and keep things on track for a timely completion.

C. Jaye Berger, Esq. is an attorney and Principal at the Law Offices of C. Jaye Berger, based in New York City and focusing on the areas of construction, real estate and co-op and condo law and litigation.

The Backyard Restaurants Are Coming. What’s a Co-op to Do?

The Backyard Restaurants Are Coming. What’s a Co-op to Do? 1920 1515 Matthew Adam Properties
From HabitatMag.com

A backyard restaurant can depress nearby apartment values by 20% or more.

As New York City continues to open up, restaurants are using every inch of available outdoor space to attract customers. The rear apartments in one co-op face a backyard that a restaurant wants to turn into a dining area. Residents in those apartments are worried about noise, odors, vermin and light pollution – as well as the impact on property values. What, a shareholder asks Brick Underground, can residents of such a co-op or condo do?

Options, it turns out, are limited. “A restaurant is always a concern,” says Deanna Kory, a broker with Corcoran. “Buyers don’t love living close by because of the noise and vermin, and it is not great for a building from a quality-of-life perspective. It’s OK if it’s an established place, but the value of a similar apartment without a restaurant could be as much as 15 to 20% higher, or more. The lower the floor, and if the windows face the restaurant, the more the apartment value is negatively impacted.”

This is likely to be a source of anxiety for more New Yorkers than ever, given the number of restaurants that opened new outdoor seating areas over the past year in response to pandemic restrictions on indoor dining. And while this change has helped to save a number of businesses, there are certain drawbacks.

“Unfortunately, vermin are often associated with food establishments,” says Gil Bloom, president of Standard Pest Management. “While proper restaurants have assorted health codes to adhere to, the outdoor dining concept is unstructured and without guidance.”

Shareholders and unit-owners may have the opportunity to state their concerns at the hearing for the restaurant’s liquor license, a legal requirement for new establishments that will serve alcohol.

“If the restaurant requires a variance or needs a liquor license to operate as proposed, you could look into attending the city hearing at which the variance or liquor license application is being discussed and state your objections,” says Jeffrey Reich, a partner at the law firm Schwartz Sladkus Reich Greenberg Atlas. “This information and some support may be obtained from the local community board or council person, but if the restaurant may operate ‘as of right,’ there is little that can be done.”

Note that the State Liquor Authority is now holding all meetings remotely via webcast; according to a spokesperson, members of the public can submit written letters in support or opposition to pending applications. These letters will be reviewed by SLA members before they make a determination on licensing applications.

If the restaurant is approved, boards can take steps to reduce the risk of pests. “The first step in defending your exterior is sanitation,” Bloom says, “followed by exterior pest exclusion with rodent-proof door sweeps and screens.”

City Conducting Surprise Sweeps of Facade-Repair Projects

City Conducting Surprise Sweeps of Facade-Repair Projects 1500 1600 Matthew Adam Properties
MARCH 04, 2021 | By BILL MORRIS

The sweeps are part of the ongoing tightening of DOB rules and fines following a recent string of fatal accidents. Last summer, the collapse of a suspended scaffold rig at an 11-story Murray Hill building left one worker dead and three hospitalized. A sidewalk shed prevented debris from injuring any pedestrians. In December 2019, a piece of debris from a 17-story building near Times Square broke off and tumbled to the street, hitting a pedestrian in the head and killing her instantly. The building had recently been fined by the city for its unsafe facade. The city’s facade inspection program was born in 1980, the year after a 17-year-old Barnard College student named Grace Gold was killed by a piece of falling masonry near the corner of Broadway and 115th Street.

The DOB has recently made substantial changes to strengthen FISP, including doubling the size of its facade-inspection unit, requiring more hands-on inspections of buildings over six stories tall, increasing the frequency of DOB follow-up inspections of known unsafe facades, and greatly increasing penalties to building owners for non-compliance. (cont. below)

NY Adds Building Workers to Vax Eligibility List

NY Adds Building Workers to Vax Eligibility List 1160 772 Matthew Adam Properties

Service Employees Can Get Jabs Starting March 17

BY DARCEY GERSTEIN 11 MARCH 2021 | COVID-19

On March 9, New York Governor Andrew Cuomo announced that beginning March 17, essential building service workers, along with nonprofit employees and government employees who have public-facing duties, are now eligible to receive the COVID-19 vaccine. New Yorkers over 60 are also included in the expanded eligibility starting March 10.

“New York is marching forward in expanding access to the COVID-19 vaccine, addressing underserved communities and getting shots in arms as we turn the tide in the fight against this virus,” Cuomo said in the announcement. “Supply is steadily increasing, and we’re opening new vaccination sites and expanding eligibility to match it.”

The announcement comes after weeks of ambiguity as to whether building service workers were eligible for vaccination by default, having been deemed “essential” under Governor Cuomo’s executive order from February 11, 2020.

But now the workers who service New York’s co-ops, condos, and other types of buildings—who have been on the front lines of the pandemic since the beginning—have definitive eligibility, regardless of age and health status. This is a huge win for those in the industry who have been lobbying for their inclusion. It’s also a win for the hundreds of thousands of residents who rely on these workers every day to maintain the properties they call home.

Kyle Bragg, president of the 32BJ SEIU, the union that represents many of the state’s building service workers, said of the announcement, “We applaud Governor Cuomo for adding building service workers to the vaccine eligibility list. Building service workers have protected the city during the pandemic, and will now get the protection they need to stay safe. Building service workers like door staff, supers, cleaners, security officers, resident managers, and porters helped New Yorkers to get through the pandemic and are vital to the city’s recovery. Their health and safety is tied to the city’s health and safety.”

Eligible New Yorkers can schedule appointments at the ‘Am I Eligible’ website or by calling the state’s COVID-19 Vaccination Hotline at 1-833-NYS-4-VAX (1-833-697-4829).

Some Co-ops Eligible for PPP Loans

Some Co-ops Eligible for PPP Loans 793 529 Matthew Adam Properties
BY MARC H. SCHNEIDER   1 FEBRUARY 2021

You may have heard that co-ops can now obtain loans under the federal government’s Paycheck Protection Program (PPP) as a result of their being included in the new Stimulus Bill. The rules governing the inclusion have finally been released by the US Small Business Administration.

First, the window for co-ops to seek a loan under the PPP is now open. In that regard, the Consolidated Appropriations Act, 2021 (the Act), signed into law on December 27, 2020 included a second round of PPP funding for those businesses that already got a PPP Loan (now known as a ‘First Draw’ loan) and also permits a First Draw Loan for any business (which now includes co-ops – but not condominiums or homeowners associations) which did not get a First Draw loan originally.

Under the program, First Draw loans can presently be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

You should note, however, the application form for a First Draw PPP Loan will require an officer of the co-op to swear and attest to the following representations:

  1. The applicant was in operation on February 15, 2020, has not permanently closed, and had employees for whom it paid salaries and payroll taxes;
  2. Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant, and;
  3. The funds will be used to retain workers and maintain payroll; or make payments for mortgage interest, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the PPP Rules.

You should not take this certification lightly, as any board member certifying the need for a PPP loan will be doing so in a fiduciary capacity, and therefore could possibly be held personally liable if certifying false information or representations. In that regard, the application form also requires the officer of the co-op who executes the application form to agree to the following statement:

“I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 U.S.C. 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 U.S.C. 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 U.S.C. 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.”

Based on the above, it is extremely important for co-ops – and the officers who may execute PPP loan application forms – to make absolutely certain that an application for a PPP loan is accurate, honest, and submitted in good faith. In that regard, if your co-op has experienced a drop in maintenance revenue, rent revenue from commercial tenants, and/or unexpected costs due to damage or the need for supplies, it would seem reasonable to apply. However, if you are not sure whether your co-op is suffering financially from COVID-related circumstances, or if you expect those circumstances to change, you should think carefully and consult with your co-op’s attorney and accountant before proceeding with a PPP First Draw Loan application.

It should be noted that just like last the first round of PPP loans last year, new First Draw PPP Loans will be forgiven – if during the 8- to 24-week period following loan disbursement, the following are true:

  •  Employee and compensation levels are maintained
  •  The loan proceeds are spent on payroll costs and other eligible expenses
  •  At least 60 percent of the proceeds are spent on payroll costs

If you believe your co-op qualifies, there is another important consideration.: If your co-op has an underlying mortgage (which nearly all co-ops do), the mortgage documents for that loan most likely contain a restriction on additional borrowing without your bank’s prior approval. This matters, because while a PPP Loan will likely be forgiven and not need to be repaid (provided the co-op follows all the rules and regulations regarding the use of the loan funds), a PPP loan is still technically a loan, and therefore constitutes additional debt – which will likely trigger a requirement to obtain your mortgage lender’s approval. For this reason, we believe it makes sense to contact the bank who holds your co-op’s underlying mortgage when applying for a PPP Loan.

You can usually process the PPP Loan application through that lender – which will enable you to address the aforementioned consent issue at the same time. If you decide to process your PPP Loan application through another lender (such as the bank where you have your operating or reserve accounts), you will likely need to obtain approval from your mortgage lender – again, depending on what your loan documents provide. You should also check your governing documents to make sure there are no other limitations or conditions on obtaining a loan.

Since the funds available for PPP loans are limited and given on a first-come-first-served basis, time will be of the essence to apply for and obtain your PPP loan. In that regard, borrowers can apply for a First Draw PPP Loan until March 31, 2021. As indicated above, unfortunately, this stimulus bill did not include condos and HOAs, who currently remain ineligible for PPP money.

Marc H. Schneider is a partner at the New York-based law firm of Schneider Buchel, LLP, specializing in the legal concerns of co-op, condo, and HOA communities.

Deadline Extended for New Gas Lines Inspection Law

Deadline Extended for New Gas Lines Inspection Law 2000 1065 Matthew Adam Properties

By Ira Meister President and CEO – Matthew Adam Properties, Inc.

The New York City Council has extended by six months the filing date for Phase 1 of compliance with the new gas lines inspection law. Reasons cited for the delay include Covid-19, uncertainty about requirements and lack of outreach by the Department of Buildings.

With the extension, buildings in community board districts 1, 3 and 10 in all five boroughs have until June 30, 2021 to file inspection reports. The previous deadline was Dec. 31, 2020.

The new law, Local Law 152, establishes a timetable for inspection of gas lines and a requirement to notify residents on procedures when a gas leak is suspected.  Inspection of gas lines is required every five years for all multiple dwelling residential buildings in the city. For new buildings, the initial inspection would take place in the tenth year. 

A master plumber must conduct the inspection and is required to submit an inspection report and certification to the building owner within 30 days. Certification from the plumber must be filed with the Department of Buildings and an inspection report must be submitted to the utility company within 90 days. The law requires the inspection of all exposed gas lines from the entry point of gas piping into the building to individual resident units.  Inspections in public spaces, hallways and mechanical and boiler rooms should be conducted with a portable combustible gas detector. Only public spaces that have gas piping or gas utilization equipment are subject to scrutiny.

Failure to comply with the reporting requirements is a major violation and may lead to penalties and civil fines up to $10,000.

Unsafe conditions, gas leaks, non-code compliant installations or illegal connections must be identified in the inspection report.  Regardless of submission timetables, all unsafe or hazardous conditions must be reported immediately to the building’s owner, the utility and the Department of Buildings and be corrected. 

Local Law 152 was passed in the aftermath of a tragic explosion in the East Village several years ago caused by an illegal gas-line connection and focusing public attention on the lack of inspection requirements for these lines. While the city requires periodic inspections of many building systems, including boilers, elevators, water tanks, sprinklers, gas lines were exempt.

Co-op and condo boards should carefully vet companies to perform the inspections. I am concerned that companies have sprung up without the proper experience. This type of contractor abuse surfaced in the first round of inspections for Local Law 10. Many of us who had been through that sequence of events can work with clients to better understand the law and hire qualified companies.  It is important to seek out experienced, licensed companies and not firms born with the new law. 

The new law also requires building owners or boards to provide residents with information describing procedures to take when a gas leak is suspected.  This notice must accompany a lease or lease renewal, be in English and Spanish and be posted in a prominent place in a common area. 

The notice advices residents to quickly open nearby doors and windows and leave the building immediately. They should not attempt to locate the leak, turn on or off any electrical appliances, smoke, light matches or use a house-phone or cellphone within the building.  Residents should call 911 to report the suspected gas leak only after leaving the building and from a safe distance. They are then advised to call the gas service provider, such as Con Ed, whose name and phone number is listed at the bottom of the information form.

The city has established a cycle for the inspections based on community board districts.  The dates are Jan. 1 to Dec. 31 as follows: 2021, Districts 2,5,7,13 and 18; 2022, Districts 4,6,8, 9 and 16; and 2023, Districts 12, 12, 14 15 1st 17. The due dates for the ongoing inspections will be the five-year anniversary of the previous inspection.

Buildings without gas piping systems are required to file a certification stating this. The reporting timetable follows that of the borough dates and must be resubmitted every five years.

No Rest for Weary Co-op and Condo Boards This Holiday Season

No Rest for Weary Co-op and Condo Boards This Holiday Season 925 617 Matthew Adam Properties
By William D. McCracken

The year 2020 has been a gauntlet, so it’s only fitting that for co-op and condo boards, the approaching holiday season presents itself not as a time of peace and celebration but instead as yet another series of trials to overcome.

With the coronavirus spreading uncontrolled throughout the country and with hospitals nationwide becoming overwhelmed, our current situation is already dire. It’s not hard to imagine that bringing extended families together over the holidays could fuel a truly terrifying increase in infection rates and deaths in the coming weeks.

Given the current state of affairs in New York City and much of the rest of the nation, co-op and condo boards should take aggressive actions to try to stem the spread of the virus in their communities. For example, boards should consider formally discouraging private social gatherings that involve bringing outside family, friends or other guests into the building. The pernicious fact is that the novel coronavirus has a long incubation period, and people can be contagious without showing symptoms or even having any idea that they are infected. Even people who recently tested negative can be unwittingly carrying – and spreading – the disease.

 

Gov. Andrew M. Cuomo recently ordered that private social gatherings be limited to 10 people. To protect the health of building residents, staff and guests, co-op and condo boards should make sure that the order is strictly enforced. Boards should require that a list of guests, with contact information, be provided to the front desk in advance of any social event.

Guests who arrive without masks or who are not on the pre-submitted guest list should not be permitted to enter the building. Doormen should be empowered to turn away guests who arrive with visible symptoms of illness. Management should also put protocols in place to ensure that there is no overcrowding in the lobby or elevators during high-volume periods before and after holiday gatherings.

While these measures may reduce the chance that their buildings play host to super-spreader events, there is little that co-op and condo boards can do to prevent their residents and staff from attending large holiday gatherings elsewhere. How can boards reduce the chances that the virus will spread in their buildings in the days and weeks after holiday events? The key is to maintain the rigorous protocols that co-op and condo boards instituted during the initial surge of the virus last spring: universal mask-wearing rules, social distancing in common areas, and regular cleanings. If they have not already done so, boards should also invest in measures to make sure that their common areas (such as lobbies, hallways, and laundry rooms) are properly ventilated and that the air is being filtered.

Even under the best of circumstances, the holidays can be stressful for many people, and the current circumstances will only exacerbate feelings of isolation and loneliness. Board members should consider steps to buttress their neighbors’ mental health this holiday season. Buildings could host virtual holiday parties, or online donation drives, or (safe and socially distanced) outdoor tree-lighting ceremonies. These sorts of small gestures could live long in the collective memory of an otherwise difficult year.

In the end, the most important thing that boards can do for this most unusual holiday season is help ensure that their residents and staff will be here to enjoy a “normal” holiday season next year.

Pilot Program Seeks Participants to Unclog City Sidewalks

Pilot Program Seeks Participants to Unclog City Sidewalks 1000 1500 Matthew Adam Properties

By Sue Treiman

Hell’s Kitchen resident Christine Berthet has been talking trash for years. Now she’s seeking at least four other garbage gurus – one in each of the remaining boroughs – to turn the talk into tangible action.

If the sidewalks in front of your co-op or condo are starting to look like a landfill as refuse from pandemic-fuelled deliveries piles up, this is your chance to do something about it.

 

Berthet, cofounder of the nonprofit Chelsea-Hell’s Kitchen Coalition for Pedestrian Safety (CHEKPEDS), needs one building apiece from the Bronx, Brooklyn, Queens and Staten Island to support the Trash Off Sidewalk Space (TOSS) program. The plan aims to transform some parking spaces into bagged garbage drop-off and collection sites that would reduce the refuse on residential sidewalks. Manhattan’s 45th Street between Ninth and Tenth Avenues is poised to start the pilot, potentially freeing its narrow walkways from an increasingly unsightly, unsanitary and untenable problem.

“Garbage is taking more and more sidewalk space, preventing the disabled or people with strollers from getting around piles of trash that can be almost as tall as I am,” Berthet says. “And it’s unsafe.”

CHEKPEDS was already advocating for change last year when the city’s Departments of Sanitation and Transportation appealed for “creative ideas” to help tame the trash. The group’s TOSS response outlined such benefits as fewer sanitation truck stops, lowered gasoline use, reduced air pollution and rat populations, and an overall tidier city. But the group never heard back from the city. “There wasn’t a ‘no’ or a ‘yes’,” Berthet says. “Just nothing.”

Undaunted, activists buttonholed locals and conducted surveys, garnering additional support. “Nobody we talked to was opposed to our plan,” says Chana Widawski, a 45th Street resident who polled residents at an environmental fair.

Then, COVID-19 arrived, worsening an urgent situation by ramping up reliance on home delivery to people confined in their apartments. Trash piles grew skyward and across pavements. “It became overwhelming,” Berthet says, “and it made it impossible for pedestrians to socially distance.”

By the time CHEKPEDS renewed its test-of-concept campaign for the TOSS program, the city was on board. But the positive response was accompanied by a significant caveat. “They didn’t want to do a pilot without including the entire city,” Berthet says. “So our challenge was to find a place in each borough willing to participate.”

TOSS’s proposal calls for designating trash “parking spaces” on the street to house bagged garbage. Participating blocks and buildings can choose from between two options: place bagged garbage in the designated space; or install seven-foot-tall “trash corrals” that hold up to 85 bags and cost about $400 each. Corrals, considered the most desirable approach, are currently in use near Bryant Park in Manhattan. Additionally, the corrals will have rat traps, to avoid becoming a rodent buffet.

“With just one building per borough – or, better yet, a whole block – we’ll be able to test parking spots as a temporary site to help clear street space,” Berthet says. “So if you’re interested, I want to hear from you.”

To learn more, take the CHEKPEDS survey at https://tinyurl.com/residentialtrash, email them at excom@chekpeds.com, or leave a telephone message at (646) 623-2689.

Smith Buss & Jacobs: Board Governance Series – Part I of V

Smith Buss & Jacobs: Board Governance Series – Part I of V 1920 1280 Matthew Adam Properties

How to Build an Effective Board of Directors

Part I: Know Your Role

Congratulations, you are a new member of the board of directors. Now what? Often directors are thrown into the proverbial hot [board] seat without an understanding of their roles and responsibilities. Misunderstanding the board’s role or directors’ duties produces a dysfunctional board, characterized by micromanagement, director disengagement, rogue directors, or lack of synergy. This article, the first in the board governance series, “How to Build an Effective Board of Directors,” will explore the fundamental role and responsibilities of the board and individual directors.

Directors’ legal duties

Directors’ legal duties and responsibilities are defined by state law and the board’s internal governance documents, including its certificate of incorporation or bylaws. The law recognizes that directors hold a special relationship with the association (and in the case of public charities, with society), and therefore imposes additional duties upon directors called “fiduciary duties.”

The fiduciary duties of nonprofit directors are the duties of care, loyalty, and obedience. Generally, the duty of care refers to the level of attention required of each director to the business of the organization. It requires directors to carry out their duties in good faith and with the care of an ordinarily prudent person in a like position under similar circumstances. The duty of loyalty requires directors to act in the best interests of the organization, and not in their own personal interests. And the duty of obedience requires directors to ensure that the organization operates in furtherance of its mission and in compliance with its governance documents, policies, and all applicable laws and regulations.
Directors may be subject to liability for breach of fiduciary duty for failing to exercise their fiduciary responsibilities.

The role and responsibilities of the board of directors

Under New York law, the board of directors, as a single body comprised of several individuals, is responsible for managing the organization. No single director has the power to take any action on behalf of the organization, unless the board as a whole has given such authority to the director. That happens in several ways.

The board may appoint or elect specific individuals to serve as officers of the board (i.e., president, treasurer, and secretary). Those directors have the authority identified in the governance documents and under applicable law for each office. In addition, the board may appoint directors to serve as committee chairs, and those directors may have specific powers related to the role of the committee. Finally, the board may vote to authorize any director or officer to take any specific action. But unless the board cloaks a director with specific authority, the director is just one limb within a larger body.

To effectively manage the organization, the board must serve three core functions: oversight, strategic planning, and ambassadorship. If the board is not consistently focused on those three things, it is not doing its job.

The board’s oversight role

The role of the board is to oversee the organization in every respect, including its finances, infrastructure, and human capital, all of which are essential resources of the organization. The board must ensure that the organization and its day-to-day managers are appropriately stewarding those resources. To be effective in this role, the board must obtain and review accurate and detailed information about the status of the organization’s resources and develop a plan of action to ensure resource preservation. The board must also ensure that there are clear policies in place by which management/staff is guided, and systems in place for monitoring compliance and accountability.

The board’s oversight role also includes self-regulation. The board must establish rules and procedures to hold itself accountable to the organization. This includes evaluating the board’s structure to ensure alignment with the organization, training directors to understand the board’s role and duties, and identifying areas for improvement. Part V of this board governance series explores the importance of board self-regulation and assessment in greater detail.

The board’s strategic planning role

A significant role of the board is to establish the organization’s mission and vision, and to develop a strategic plan for the organization to accomplish them. A strategic plan charts the future course of the organization and identifies the specific actions that will move the organization forward along that course. Cyclically, the board should be developing a strategic plan for the organization or overseeing the implementation of an existing strategic plan. If the board is doing neither, it is not doing its job effectively.

The board operates effectively when its actions and the organization’s operations are aligned with the specific strategic priorities that the board has established in consultation with management. Without strategic planning, the organization may be stagnated, unproductive or disorganized.

The board’s ambassadorship role

The role of each director on the board is to represent, promote, and advocate for the organization, and to ensure that the organization is reflected in the best possible light. The board’s ambassadorship role occurs largely outside of the boardroom. It requires directors to use their personal resources to raise awareness about and in support of the organization.

But ambassadorship also means that directors understand and realize that what they say and do outside of the boardroom reflects upon the organization. This includes speaking negatively in public about the organization, fellow directors, or specific board decisions. Although directors are just one limb in a larger body, understand that when a limb is infected, the infection may spread and affect the entire body.

The role of the board in day-to-day management

As the board operates from a bird’s-eye vantage point, it is not involved in the day-to-day management of the organization. Rather, the board hires an executive officer to be responsible for day-to-day operations (such as hiring and firing staff and monitoring finances) and implementing the board’s mission, vision, policies, and strategic plan. In comparing the role of the board and that of the executive officer, the board’s role is often analogized with a family vacation. Whereas the board is responsible for determining the destination and the budget for the vacation, the executive officer is responsible for determining the route and the mode of transportation, to arrive at the destination within budget.

Board micromanagement

Although boards should not be involved in day-to-day operations, it happens. One director calls a staff member directly for a copy of a report. Another director pops into the office to say hello, casually making random suggestions. Yet another director emails staff making a number of requests.

Such interference with day-to-day operations, often by rogue directors, can be very disruptive to the organization and can lead to inappropriate micromanagement. Micromanagement occurs when directors assume tasks or make decisions that should be left to the executive officer, management, or employees. This often includes giving direction, instructions, or orders directly to personnel rather than through the appropriate chain of command within the organization.

Incessant board interference in day-to-day operations evokes the fable of the eagle who thought it was a chicken. As the story goes, a chicken farmer found an eagle’s egg and put it with his chickens. The egg hatched and the eagle was raised surrounded by chicken and did as chickens do – it walked around all day, clucking and pecking at the ground. The eagle lived out the rest of its life and died believing it was a chicken, never fulfilling its purpose as an eagle.

Directors who roam the organization’s offices clucking demands at staff and management are like eagles behaving like chickens. Instead, directors are meant to soar high above-ground where they have a full and broad view of the organization, and should not be on the ground micromanaging staff. Indeed, directors should not act independently from the board.

Key takeaways
  • To build an effective board, directors must have an accurate understanding of their roles and fiduciary responsibilities and operate within that understanding.
  • The primary roles of the board are to (i) oversee the organization’s assets and operations, (ii) strategically plan the actions that lead the organization to operate within and fulfill its mission, and (iii) act in furtherance of the mission of the organization both inside and outside of the boardroom.
  • The board should perform its duties from a bird’s-eye view of all of the organization’s operations, and leave the day-to-day operations to the executive officer or management.
For more information contact:

Nancy Durand
ndurand@sbjlaw.com

This article is Part I of V in the Board Governance Series: How to Build An Effective Board of Directors

Managing Co-Ops & Condos Strategically

Managing Co-Ops & Condos Strategically 1950 1301 Matthew Adam Properties

By Ira Meister President and CEO – Matthew Adam Properties, Inc.

The foundation of Matthew Adam Properties’ management efforts is a philosophy and practice we call “strategic management.”

It is a disciplined approach to property management and one that has proven very successful over the years. I believe it would be helpful to boards of both condos and co-ops to learn about strategic management and see if they can adopt elements for their properties. This approach is particularly effective as we work our way through the pandemic.

In its basic form, strategic management is adapting sound business principles to property management, which is straightforward as most condo and co-op corporations are multimillion-dollar businesses. All too often, however, this is overlooked, and emotion and lack of discipline become the guiding forces in the operation of a property.

Our goal with strategic management is to listen to the policy preferences of the board and maintain discipline as we implement them with excellent management and innovative thinking.

How does strategic management work?

When we are retained, we immediately evaluate a property to identify its strengths and weaknesses. We then create a program that includes financial issues, service, contracts, maintenance, repairs and long-term capital improvements.

Periodically, the board and our asset manager review the target objectives and evaluate our success in meeting them. This reduces unwanted surprises and takes into account short- and long-term requirements. It is a planned approach rather than the usual Band-Aid cure. When objectives are not met, we analyze the situation and develop alternative methods.

Since we initiated strategic management more than two decades ago, managing properties has changed significantly. The most significant change has been the evolution of technology, which affects so much of what we do today.

Another change has been the emphasis not only on managing a property effectively but on increasing the value of the property and the individual units. Strategic management plays a role, as it provides premium management and services, which are essential. But it goes further. It indicates to prospective buyers that the building is managed efficiently and like a business. The financial records we maintain are up-to-date and accurately reflect the property’s financial condition.

Successful corporations continuously seek ways to innovative and improve their product. For us, it means seeking improvements to provide additional amenities and services for residents. I’m proud that Matthew Adam Properties was a leader in creating unused space as a playroom for children. We did this more than a decade ago at York River House on Manhattan’s East Side using in-house staff to reduce costs.

Speaking of innovation, as part of Matthew Adam Properties’ Green Management Program, we installed water recovery systems in participating properties. The run-off water is saved and used to water plants and trees. Not only does this contribute to saving water, but it also has the economic impact of reducing the city’s continuously escalating water tax, which is now based on usage rather than frontage. In its more sophisticated application, the water can be recycled for use in toilets and HVAC systems.

Our participation in the “green revolution” is a natural outgrowth of our program in seeking innovative ways to maximize resources and provide efficient and effective means to manage a property.

For example, a geothermal well was installed in a multifamily condominium of East 93rd Street — one of the few in Manhattan. It is estimated that geothermal systems are 75% more efficient than oil furnaces and 48% more efficient than natural gas, with costs recovered in as little as two to eight years.

Green initiatives also include improving lighting in public areas — we helped design new fixtures to improve efficiency. Successful businesses provide a healthy and safe work environment, and we encourage the use of non-toxic cleaning products, which are less expensive and more effective.

Strategic management initially provided a path to improving management services. It has evolved over the years into a plan that allows us to adapt to changing times and provide innovative and value-added services for condos and co-ops.

Originally Posted on MannPublications.com