Follow the Water: How a Simple Leak Led to Diplomatic Relations

Water damage is not a unique occurrence in residential apartment buildings, but a recent crisis at an Upper East Side co-op got complicated to fix. Water was pooling in the boiler room and seeping into the electric meter room, and a shareholder’s apartment was damaged. Aaron Weber, property manager at Weber Realty Management, shares the challenging tale of investigation, dye testing, insurance denials, financing, and a neighboring embassy's collapsed sewer line - and how the co-op finally solved the issue. Habitat’s Emily Myers conducts the interview.

How To Run Your Building: For Co-ops and Condos

Transcript

Emily Myers: Welcome to Inside Track, a conversation with New York's leading property managers. I'm Emily Myers with Habitat Magazine, and my guest today is Aaron Weber, property manager at Weber Realty Management. 

It is critically important for co-ops and condos to have sufficient reserve funds to deal with infrastructure projects. The ideal scenario is to have a five or 10 year plan for necessary maintenance and repair projects and the funds to carry them out. But we all know that emergencies happen. Aaron, an Upper East Side co-op in your portfolio has been dealing with major water damage and struggling to meet payments for repairs.

We'll discuss what other co-ops can learn from this shortly, but can you first share what's happened? 

Aaron Weber: In early 2024, the super notified us of pooling in the boiler room, which is the lowest point of the building. So we followed the water pipes all the way to the main under the street and sidewalk, and it showed that there was a slight break.

 There was also water coming in through the front of the building into the electric meter room. So after we started excavating, we realized that the majority of the leaking issue was coming from the neighboring building next door, which is an embassy. So we turn to insurance to file a third party liability claim.

But they ended up denying our claim and left us hanging. So we were seeking financing as a secondary option. The building just invested in state-of-the-art boilers last year. So the reserve fund was depleted. They were working on building it back up, but this situation arose at a really bad time in the co-op's financial position.

We performed dye test next door and it turned out that their sewer pipes collapsed underground and was infiltrating into the trench that we dug to replace the sewer and water pipes. And while everything was exposed, we ended up changing the water main valve and we gave the building all new drainage components.

But again, the insurance was not very helpful and we did end up hiring an insurance public adjuster to go through the individual shareholders' apartment who had a section of the work done in the basement section. 

Emily Myers: So obviously who is responsible for water repairs is a contentious issue in a co-op.

But what you're saying , was the damage to the mechanical room and there was obviously damage to someone's apartment as well. 

Aaron Weber: Yes. So there is a private co-op apartment that is three floors, and the bottom floor is in the basement. And the building's main pipes runs through, under the floor from the back of the building to the front of the building where the property line meets the street. When there is a water main replacement job, the building is responsible in .New York City, the building holds accountability for the sewer pipe that goes under the sidewalk. In other cities, the city holds responsibility, but in New York, buildings have to fix their sidewalks, even though it's a public space.

Emily Myers: And was it identified to be the neighboring mainline or was it your buildings? 

Aaron Weber: It was both. There was water flooding from the front of the building. We thought it was a runoff from the front of the building to the back, but it turned out the majority of the leak was coming from the neighbor building and that's from the middle of the building, and we were only able to find that out once we excavated and exposed the pipes.

Emily Myers: And presumably this was an expense for your building at the time. 

Aaron Weber: Yes, it was a major expense. 

Emily Myers: What kind of cost are you looking at?

Aaron Weber: The cost for the main sewer line and the water line to replace those pipes was about $120,000. And then there is another $60,000 for excavations. And restoring the basement unit back to original condition, to baseline condition. All of the soil that was removed from the ground was contaminated with sewage, so all of that needs to get hauled away and replaced with gravel or backfill.

Emily Myers: And what was the relationship like with your neighbor who presumably as you mentioned, was an embassy. They were obviously having to work with you to solve the problem? 

Aaron Weber: They were very hesitant to go to their insurance, so we had to send them a legal letter asking them to do so. At first they were very cooperative, letting us perform the dye test.

We flushed yellow dye down their toilets and shower drains. And it appeared under our building, so that was the smoking gun that showed that it was their responsibility and it was coming from them. After that, they hired a plumber to perform their own dye test, and they did a camera scan, which did validate our result.

And then they hired a plumber to do their own excavations to fix their drains. And that took about three, four weeks. So the whole process took about two and a half months. 

Emily Myers: You mentioned that you sent a legal letter to the embassy. Was that to encourage them to respond to you slightly more promptly?

Aaron Weber: Yes, it was. They were slow playing it. They wouldn't give us their insurance information, so that was to make sure we were properly covered and we could share the information in our insurance claim. 

Emily Myers: And did it have the desired effect then?

Aaron Weber: It didn't, it actually made them go slower in my opinion, because they had to share everything with their attorney, which had to be reviewed. Everything needed to be formalized. And I think it ended up costing the building more to go that route. 

Emily Myers: Delays in water repairs can significantly increase the cost of those repairs, can't they?

Because you're dealing then with the after effects of water. Mold, for example, and those situations. Is that something you've experienced? 

Aaron Weber: No. We didn't have any mold issues or anything like that, but the shareholder could not use one third of her apartment since the start of this project.

So we did have issues with collecting maintenance for that unit. But as far as water remediation, we sealed off that section of the building really well and put in dehumidifiers and fans. So it's contained. 

Emily Myers: And of course in New York City, the warranty of habitability protects co-op owners, doesn't it?

Whereby shareholders have a right to a safe and livable apartment. And so the repairs for the shareholders' apartment fall on the building. What are those costs looking like? 

Aaron Weber: It keeps piling up. The shareholder insisted that we hire a structural engineer to write a report on their opinion of the condition.

And their plan to safely fill in the trench. And the shareholder also insisted we pay for her designer. So there's a lot of costs that are piling up, but the building has to draw the line and say, no, this is the building's responsibility. And then anything above baseline from how we found the apartment is the shareholder's responsibility.

Emily Myers: Are the governing documents clear on that? 

Aaron Weber: It's a little bit of a gray zone and it's really up to the board and their discretion. And there are attorneys that are reviewing the bylaws and representing the building, representing the shareholder , that hopefully we can come to a settlement where the attorneys agree. 

Emily Myers: So attorneys are involved in every step of your process? 

Aaron Weber: They are, yes. 

Emily Myers: And how was the building meeting its bills?

Aaron Weber: We just took out financing, so we closed on a loan on May 29th. It was a $300,000 non revolving line of credit from NCB, which is the National Cooperative Bank, and they were able to get a 6.25% interest rate. It's an interest only loan and that's how we are paying the bills through the financing.

We're gonna structure an assessment and lay out a framework for a future assessment. But right now we're able to stay in good standing with all the contractors thanks to the financing. 

Emily Myers: And you said that the building had just got a new boiler and that's why their reserves were depleted.

What are the takeaways here then for other buildings?

Aaron Weber: I would recommend having an unused line of credit just in case that you can tap into. In this building's case, they already maxed out their line of credit. So that was an issue. Also make sure that the reserves aren't depleted and there's no vulnerability and gap in time that you might be susceptible to problems like this.

So when there's a capital improvement, there should also be a portion allocated to go back into the reserves. And if there's issues with affordability on that assessment, you can lay out options where you could, finance over 10, 24 months or do a blend of an upfront payment and then smaller costs along the way. So with co-ops, you really have to get creative on how to replenish reserves. 

Emily Myers: Are there preventative measures that buildings can take to ensure that those sewer lines are well maintained? 

Aaron Weber: There are, you can run a camera through the sewer lines and the water line to determine if there's any damage.

But there's a lot of third parties that could damage your lines. Like when Con Edison makes repairs in the street. Or when Verizon is installing fiber optic cables, it could affect your lines. So if you notice. Work is being done outside your building and your street is turned into Swiss cheese overnight, you might wanna hire a company to scan your pipes and see if there's any damage. 

Emily Myers: Yeah, that's a great tip, isn't it? Check your lines after road repairs or other excavation just to make sure that you're not gonna be dealing with something horrendous further down the line. 

And the loan you said is for $300,000.

Do you estimate that it will cover the total cost of repairs and legal fees? 

Aaron Weber: Yes, we do. We think it should be sufficient. We're also gonna pay off a portion of the line of credit that's at 9% interest. So that will save us some money on debt service, and also open up the line of credit if we need it.

Emily Myers: And what's your relationship now with the embassy? Now you're through this perhaps a little bit more. 

Aaron Weber: We have a good relationship with them. They did their part, it was very slow and now it's up to their insurance to deal with all this aftermath and any recourse that we're claiming.

They were very nice. 

Emily Myers: Will you get money from the embassy? Will they be able to support your payments? 

Aaron Weber: So if the insurance claim doesn't work out, then I think the next step is litigation against them. That's what our adjuster told us. That might be a possible outcome. We're hoping the insurance will do the right thing and accurately document everything. Otherwise yeah, we might have to litigate against 'em. 

Emily Myers: Wow. 

Aaron Weber: Yeah. 

Emily Myers: Anything else you can share?

Aaron Weber: A lot of people don't realize that the main sewer line is the building's responsibility. It was a big shocker for the board of directors to learn this and, try to maintain good relationships with your neighboring buildings.

Emily Myers: Great. Aaron, that's fantastic. Thank you so much. Aaron Weber, property manager at Weber Realty Management.