What One Condo Learned About Enforcing Its Own Rules

When a Lower East Side condo board ran out of patience with a rule-breaking pet owner, they needed a solution that didn't involve a lengthy and expensive lawsuit. What their attorney found buried in their own governing documents surprised everyone — and ultimately stopped the problem in its tracks. In this episode, attorney Lloyd Reisman, partner at Belkin Burden Goldman, pulls back the curtain on why so many building rules are essentially unenforceable — and what happens when boards find that out the hard way. He explains what residents can expect when buildings haven't updated their documents in years, and the practical steps that separate buildings that can act from those stuck waiting on a judge. Habitat's Emily Myers conducts the interview.

The business of running a building is demanding work that requires making endless decisions — some that can quickly lead your board into a quagmire of legal difficulties. Legal Talk interviews New York's leading co-op/condo attorneys to find solutions, and get some guidance, on these challenges.  For more co-op and condo insights, sign up to receive Habitat's free newsletters or become a Habitat subscriber today!

Transcript

Emily Myers: Consistency between the proprietary lease and house rules isn't just a legal nicety, it's the difference between a rule with teeth and one that's all bark. House rules can only bite if the proprietary lease gives them the authority.
Tina Larsson: I'm Tina Larsson with the Folson Group. We deliver done for you property management searches. You make the final call, we handle the rest. Add to that our seamless project management and strategic cost optimization, and you get a partner that empowers boards to make smart, confident decisions that move your building forward.
Emily Myers: I'm Emily Myers with Habitat Magazine, and my guest today is Lloyd Reisman, partner at Belkin, Burden, and Goldman. Lloyd, thanks so much for being here. 
Lloyd Reisman: Thanks for having me. Nice to speak with you. 
Emily Myers: So we're gonna discuss what it is boards need to know about the proprietary lease and house rules and the condo equivalent.
Lloyd, what are the most common mistakes boards make when adopting or enforcing their house rules? 
Lloyd Reisman: I would say there are two common mistakes, one of which is adopting a rule that is not authorized by the underlying document, be it the proprietary lease or the condo bylaw, and the other is the manner by which it is imposed.
And by that, I mean timing is somet- sometimes a big factor, and if boards try to do things immediately without notice to their shareholders or unit owners, they can run afoul of certain obligations in their documents. 
Emily Myers: Okay. So if the board changes the house rules, for example, adds fines for certain behaviors, or requires insurance, or bans smoking, what you're saying is the board has to ensure the proprietary lease is changed in order to make the rules enforceable, and there's a timing element as well.
Lloyd Reisman: So I would describe it more to use the presidential analogies, Congress passes a law, and the president enacts it. So the proprietary lease or the condo bylaws is the law that Congress passed, right? And then the house rule is the president's enactment of what's in those underlying documents, and if the authority that the president wields goes too far beyond the scope of the underlying law, so to speak then the board might be overextending itself with regard to that application.
And the other part of it is the timing piece, which is the best practice is to give somebody advance notice of the imposition of a rule, of a fine, or anything like it before it's being imposed on them because if they didn't have knowledge of it, then they didn't really understand the implication of their behavior.
Emily Myers: And what are the risks then for a board if they enact these changes too quickly or perhaps incorrectly? 
Lloyd Reisman: So number one is that the thing ends up being potentially unenforceable. So if you're trying to address, an underlying behavior that's problematic and you want that behavior to stop, one of the ways to do that is to impose a fine for that behavior.
But if you can't enforce that fine, you might be undermining your ability to actually control that behavior. Other examples are, rules of engagement. So if there's a manner by which they want an amenities feature used in the building and people are using it in a way that's contrary to what the board wants, if the board doesn't do a good job of educating its residents about how to use the amenity, the board undermines its entire authority to regulate that amenity.
Emily Myers: Okay. I understand you've helped a Lower East Side condo authorize restricted ac- access to amenities for non-payment or breaking the rules around pets or noise. How did that come about? 
Lloyd Reisman: So that was a unit owner in a condo who had a dog that was being allowed to use residential amenity spaces in a way that was resulting in the dog doing its business in the amenity space.
And obviously the board did not like that, the neighbors did not like that, and the question that came to us was, "How do we control this resident?" So we, of course, talked about a fine schedule, and the first place you look is in the board's, enumerated powers in condo bylaws to see if they have the authority to adopt fines.
And then from there, there was actually another section of the enumerated powers that spoke to the board's authority to adopt rules concerning the use and enjoyment of the residential amenities. And so we took that to mean that the board could, through a well-developed and well-publicized rule, let its residents know that if they are derelict in their treatment of these amenity spaces in violation of these rules, that these amenity spaces can be denied to them.
And so what ended up happening is that unit owner who did not control their dog ended up losing access to the amenity space, which was accessed through a key fob. So the building could very easily, disable their key fob. So that was one example where it worked. 
Emily Myers: Okay. And w- and what if a resident refuses to follow those house rules?
What's the board's next step? 
Lloyd Reisman: It becomes a lot hairier. In a building where, for example, you don't have a key fob but instead you have an attended amenity that attendee needs to become the bouncer of the amenity and keep people from coming and going, and some boards are not comfortable putting their resident their employees in that position.
This came up a lot in COVID also when the front door staff essentially became, the safeguards of the entrée into the building. So in those contexts, you're left with litigation as your option. And as any board who's been through any litigation knows, litigation is a pretty terrible option.
It's expensive. It doesn't get you where you wanna go anytime quickly. And it usually makes people feel worse about the situation than better. 
Emily Myers: Okay. So even more sort of incentive to make sure that the the governing documents align. Presumably when boards pass rules that they can't actually enforce, it can erode trust.
Residents may begin ignoring other rules, assuming that they might not be valid either. What would be your advice? 
Lloyd Reisman: So there's the legal aspect and there's the practical aspect. So from a legal perspective, certainly it makes sense for a board to ask these questions of its attorney and say, "Hey, we wanna do X, Y, or Z.
Do we have the authority to do it?" And if the answer comes back is no, then you come into the practical context, which is as long as you the board understand that you can't enforce, for example, a fine policy but if your goal is to curb the problematic behavior, maybe it's worth adopting the fine policy anyway with the understanding that it can't be enforced.
And that lends itself to your point, which is well taken, which is the political risk, right? If you undermine the trust of your constituents, your shareholders, your unit owners they may not elect you next time. And if this comes to light and people realize that you're taking these steps it may play poorly in the court of public opinion.
Emily Myers: And, we often hear at Habitat of stories of buildings that perhaps haven't updated their governing documents. That, that actually... W- what's the risk there if a building has not updated its governing documents and really not taken a look at how their rule, their house rules are being enforced?
Lloyd Reisman: The biggest single risk is that your only tool is litigation, right? So really these modernization of documents, the updating of the house rules, the adoption of fine schedules and things like that are intended to give the board tools to address issues in the building to make people's lives better without having to go through costly and time-consuming litigation.
And so many people find out that their documents don't authorize the imposition of fines. They can't adopt rules restricting access to non-essential amenity spaces. It has to all be done through a bylaw amendment or a lease amendment. The example that was popular a couple years ago was the smoking ban.
If people wanted to do a building-wide smoking ban, they were surprised to learn that they had to amend the proprietary lease to make sure it applied to everybody. So these are the examples of how it plays out in real time and why boards should be looking at this because to the extent that a board feels frustrated that everything their lawyer is telling them is litigation, These tools you can develop through your documents and through your house rules might put you in a position to be able to mitigate against constantly litigating things in your building 
Emily Myers: So a scenario that I've heard of as well is that the house rules say that every shareholder or unit owner must carry insurance, but then the proprietary rules don't mention it.
A claim can arise over this where the board discovers that they can't enforce the rule. What should they be doing? 
Lloyd Reisman: That's a tricky one because in current days insurance is a very hot button issue. It's very expensive for everybody. Nobody wants to submit a claim, and the boards are running into this at the board level where they go through the building's policy annually to renew it, and if they can push some of these claims onto the responsible shareholders or unit owners, they think that's a sensible thing to do.
And I'm not sure there's a bright line answer to this, but my position is that to the extent you're obligating your shareholder or your unit owner to spend money to do something, that should really be authorized in the underlying document. That should be a law, right? That should not be a house rule. Once you have the law, which can be as simple as, the board can require shareholders to purchase, maintain, obtain insurance at such amounts as it may determine from time to time, that authorizing language creates the context within which you would then develop a house rule, right?
And then periodically the board could revisit, okay five years ago we required $100,000 of insurance. Is that still the right amount today? Five years ago, we didn't require flood insurance. Should we be requiring flood insurance today? That's how I would approach that situation. 
Emily Myers: So of course what you're talking about then is amending the proprietary lease but which is obviously in, in many cases quite difficult because you need the super majority of shareholders to do that.
What then is your advice for boards? 
Lloyd Reisman: If it matters enough to you as a board member and as a building, and you think the benefit is large enough to your constituency, then try to amend the proprietary lease or the bylaws. Go through that process of educating your constituents as to why you think this import- is important.
Usually the number one reason is that is there's a cost savings to be realized if you can shift the burden from the board to the shareholder or the unit owner, and have those town hall meetings, answer those questions, put yourself out there and do the job. Certainly rely on your professionals, rely on your lawyer to help prepare you for those meetings.
Rely on your managing agent to the extent you need to. But, get out there and put in the time and answer the questions, and hopefully by the time you go for the vote, you will have answered all of the questions so people want to vote yes. 
Emily Myers: Have you worked with a building recently who's managed to change the proprietary lease and what were they trying to achieve?
Lloyd Reisman: The ones we've done recently have really been wholesale updates. And with the exception usually of increasing the flip tax they've all been successful again it's usually a common sense presentation. We've spoken to our lawyer, some of this language is outdated. We've spoken to our manager, some of this language is outdated.
And so it, it amounts to a lot of cleanup. To go back to the insurance context, there's usually a discrepancy between the repair obligations of a set of documents and the insurance obligations of a set of documents, so often the board's responsibility in a casualty exceeds what they would otherwise be responsible for a conventional repair, and that discrepancy creates a lot of confusion.
It creates a lot of burdens for the building, which historically may have made sense, but I think in this evolving insurance climate make less and less sense. So that's just, one example. 
Emily Myers: Okay. So what are the key pieces of advice then for boards o- on managing house rules and governing documents?
Lloyd Reisman: So I think number one is identifying the problems you have in the building and thinking about how they need to be solved and whether there's a behavioral aspect that can be imposed upon the residents and the shareholders to curb that behavior. And if there are, then I would turn to your house rules and try to update them, but I would start with does the lease or bylaws authorize us to do the thing we want to do, right?
And if the answer is no, then you really have to look at the underlying document and consider amending it to authorize you to do what you wanna do. Or if it does, then you kinda have carte blanche to sorta develop a policy within the framework of the underlying document, and then, again, my advice is 30 days notice to the residents before it's imposed.
And then it sorta goes into the books, and it's until the next board comes in and decides if they like it or don't like it. If it's popular or unpopular, they can change it. It doesn't live forever. It doesn't have to live forever anyway. That's where I would start. Really focus on your building's problems and how you think they can be addressed through means other than litigation.
Emily Myers: That seems a good place to leave it. Lloyd, thank you so much. 
Lloyd Reisman: You're very welcome. Nice speaking. 
Emily Myers: That was Lloyd Reisman, partner at Belkin, Burden, & Goldman. Thank you for tuning in to Habitat's coverage on issues affecting co-op and condo boards.