An Excerpt from
101 Ways to Improve Your Cooperative
A Law Primer
By: Randall A. Pentiuk, Esq.
CHAPTER ELEVEN: PRESERVING THE CORPORATION
This section looks ahead to the future viability of the Cooperative and the measures that today’s Board can take to ensure that your corporation enjoys a bright and long future.
82. Be aware that there are forces that are hungry to get their hands on your property to transform the Cooperative into other forms of housing, most notably condominiums. If the Board and membership are truly committed to remaining a cooperative form of housing or, in the case of affordable housing cooperative, there are steps to take that will thwart efforts to convert the Cooperative. The Cooperative Attorney should provide guidance in this area, which includes amending the governing documents to require a very high vote to alter the form of your Cooperative, and recording a deed restriction in the chain of title that limits the opportunity to convert.
83. Keep the Cooperative competitive with surrounding housing. After the HUD mortgage is paid off, the Board has an opportunity to seek refinancing in order to freshen up and improve the appearance of the property by doing a community-wide renovation of such items as doors, windows, cabinets, and other fixtures. Since you will not be paying the HUD mortgage, that frees up funds that can now be used to pay a new loan. The Management Agent, in conjunction with the Cooperative Attorney, works with lenders to arrange for that financing and then assist the Board in securing a qualified contractor to perform the work.
84. It should be noted that if the Cooperative refinances, there is a commitment to refrain from any actions that fundamentally change the form of home ownership. This, in effect, ensures that the Cooperative will not undergo a conversion to condominiums, or move from limited equity to market rate, for the duration of the loan. In other words, it is a back-door way of preserving the Cooperative form.
85. Once the HUD mortgage is paid off is the time to have a title search performed to make sure that all liens and encumbrances are extinguished. It is often surprising to Boards to learn how “clouds” are placed on the title and should be addressed by the Cooperative Attorney and cleaned up. This needs to be done sooner than later, since it often requires obtaining signatures of people and it becomes complicated and costly if they have died.
86. The event of the HUD mortgage payoff also presents the opportunity to take a look at the governing documents. It is wise to remove references to HUD since it will serve to confuse future members.
87. While the Board is examining the bylaws and other governing documents in the post-HUD era, you have the occasion to look at other areas that should be addressed. One example is the transfer value table which typically only runs through the fortieth year of the Cooperative’s existence. There must be provision for future years, and careful consideration given to how much the annual increase should be. If it is too high, it may price the Cooperative out of the market for competing forms of housing.
88. This post-HUD examination of the governing documents also affords the Board the opportunity to make other changes as necessary to clean up problems experienced over the prior forty years. These include:
Quorum requirements for membership meetings
Use of absentee ballots
Voting requirements and procedures
Providing for estate planning trusts
89. Once the Board has gone through the governing documents, the amendments need to be presented to the membership for approval, which usually requires a majority of all the eligible members. This can be a challenge so careful planning needs to take place with the assistance of the Cooperative Attorney. Creative ways of securing the high number of votes should be considered. You must find ways to educate the members in a way that allays concerns and fears that they are somehow giving up some rights.
90. When the amendments are ready, a special or annual membership meeting needs to occur wherein these document changes are presented for vote. As noted above, this requires special planning to bring out the vote. Incentives may be necessary, such as drawings for free carrying charges and other gifts. You may need to consider calling the meeting and then recessing to allow day long voting before reconvening the count the votes.
91. Special care must be given to the notice of the meeting, the attachments, and the timetable for sending out the notices and proposed documents. The Cooperative Attorney should provide guidance to ensure that all of the existing bylaws and state corporate laws are strictly followed.
92. In addition to the foregoing list of revisions to the governing documents, have the Cooperative Attorney bring the Board all of the new developments in state corporate law. Much is changing in this area, in order to make conducting meetings easier, as well as providing protections to volunteer directors and officers from personal liability. For example, emails are being recognized as a legitimate way of communicating, and meetings of the Board may be able to be conducted via conference calls.
If you would like a copy of
“101 Ways to Improve Your Cooperative”
Please contact Randall Pentiuk at firstname.lastname@example.org.