The Habitat Ombudsman Debate

Background

ACCO proposed to the editors of Habitat magazine that a debate be held on the merits, utility & necessity of the Ombudsman Bill,  S.395.   We offered to field a team supporting the Bill, & suggested they talk to CNYC & FNYHC to field a team opposing the Bill.  The editors agreed, & that’s exactly what happened.

The resulting article appears below.  We think it’s extremely useful in airing both sides of the issues, & we particularly appreciate the well-researched addendum on the actual experience other states have had in establishing ombudsman offices similar to that proposed for New York.  We recommend a thorough read.

Our only regret is that–despite being the magazine’s cover story–there was not enough space to go into more depth.  The expanded section below the debate link includes additional information & perspective that did not fit the print edition.

Debate

The actual debate is here, straight from the pages of the magazine:

Habitat Ombudsman Debate

“Director’s Cut”

Here are selected additional comments from the ACCO team, for which the magazine did not have room:

Elections

(The opposition repeats, like a mantra: “All you need to do is elect a new Board.” Right.  One of the most frequent complaints ACCO hears is that elections are unfair, requests for independent monitors are ignored, or elections simply aren’t held.)

Kevin McConnell: The easy answer to an aggrieved owner is: “This is a democracy.  Elect a new Board.”  But that easy answer ignores the harsh reality.  Owners seeking responsive Board governance often cannot access corporate records to which they are entitled such as names and addresses of other unit owners.  Hotly-disputed elections are not monitored by independent overseers.

The Attorney General’s office today advises aggrieved owners (unless it involves a new offering plan or conversion):   a] to retain private counsel, &  b] to “act swiftly” if the problem is serious.  How democratic are our communities when an owner seeking to discuss election issues or pursue a by-laws amendment must spend $10,000 just to connect with other voters?  An ombudsman is the best way to relieve, & to preclude, such problems.

Bob Dannin: New laws are generally necessary for two reasons, first because the old ones are not enforced and secondly because conditions have changed.  Many governing boards have usurped rights and privileges that are not theirs to begin with.  Until the inception of an Ombudsman, no public authority will be available to challenge this undemocratic, “landlord-like” conduct.  By reinforcing fiduciary responsibility as the main principle of governance, the Bill also responds to the new economic reality by restraining practices detrimental to our common interests.

Is an Ombudsman necessary?

Larry Simms: It’s essential to understand that the Ombudsman Bill is not about redefining the rights of apartment owners; it’s about practical enforcement of rights to which owners are already entitled.  Boiled down, the question being asked is this:  “Should all owners enjoy the rights granted by their association’s governing documents, or only those who can afford a private attorney?”

Bob Dannin: The oversight implicit in the Bill minimizes the likelihood of boards or officers making poorly informed decisions in the domains of transfers, litigation, administrative costs, contracts, and other common charges.  By guaranteeing transparency and providing low-cost alternatives for conflict resolution the legislation promotes a spirit of dialogue and conviviality while simultaneously freeing up the money we desperately need to maintain our property and improve our quality of life.  The status quo denotes the irresponsible corporate excesses of the last century.  The Ombudsman Bill offers New Yorkers a serious opportunity to rejuvenate their homes and their city.

Dianne Stromfeld: As a real estate broker and educator for over thirty years and a former Vice president/board member, I am certain this bill will impact the sale of apartments in a positive way.

Buyers are often fearful of living in an environment where they do not have a say in day-to-day operations.  Many have learned, because of their own or other’s experience, that questions often go unanswered and problems remain unsolved.  An assurance that there is an ombudsman agency to turn to in a time of need would certainly bolster buyers’ confidence in this form of real estate ownership.

Cost

Steve Vernon: As a current Board President and former Treasurer (I still personally perform the annual Budget), I am very aware of the financial pressures co-ops & condos are under.  Taxing owners is very fair for three reasons: owners obtain the benefit of the appreciation in their investment, the cost is very reasonable, and the alternatives are very expensive.

Since owners benefit from the appreciation in their unit values and suffer for the lack thereof, taxing owners makes sense.  I am a fiscal conservative and I appreciate that this bill is funded right from the start.  Using NYS general funds is not fair as I don’t think taxing single family home dwellers or renters would be palatable to them.  In this case, a small direct tax that the bill calls for is fair, inexpensive and responsible.

This all costs less than 2¢ per unit per day; making room in the budget for my 113 unit co-op will be almost invisible to the shareholders.

Larry Simms: Looking at cost per building is a fatally flawed approach, since budgets always scale with building size.  Whether your building has 10 units or 1,000 units, the ombudsman will cost each owner $6 annually…period.

Claims that the Bill will impose other costs, or that it will somehow circumvent the business judgment rule, are completely unfounded.

Impact

Bob Dannin: Most disputes arise from ignorance or willful disregard of the rules.  Darkness, secrecy, rumors, and silent by-standers also perpetuate conflicts.  I regard the Ombudsman Bill as an example of “sunshine” legislation because it mandates transparency and provides an open-source for problem solving by all interested parties.  If these mechanisms fail, the ombudsman should be empowered to perform triage according to the severity of the disputes.  Once the office begins to exert its authority and create precedent in this regard, disputes will begin to sort themselves.

Steve Vernon: The co-op of which I am president tends to be attractive to first-time home buyers and as a result, both owners and board members have a learning curve.  I believe that board members would act more responsibly if the possibility of a more educated ownership and an ombudsman looking over their shoulder is presented.

Kevin McConnell: The ombudsman should not be considered as “anti-Board.”  Presently, if an owner, who is determined and well-financed, feels aggrieved, litigation is very likely.  The litigation costs to defend will be paid by the other unit owners through additional maintenance or common charges.  If the matter can be defused through the ombudsman’s mediator service, these costs are avoided.

Similarly, the bill is designed so that Boards can initiate the mediation process if there is an issue with an owner.  After a Board requests assistance, individual unit owners will more likely co-operate & not resist a call for mediation from the Attorney General’s ombudsman.

The ombudsman will not interfere in the decision-making process or governance structures of Boards.  Those Boards who operate in good faith & in communication with their owners (as the overwhelming number of Boards do) should fear nothing from this bill.

Larry Simms: There’s the unpleasant fact that some boards use litigation as a tactic.  The reality of paying even an initial attorney retainer is often enough to make owners quickly retreat from both their grievances & their principles.  Is this how we want our communities to be governed?  Just a hint from the ombudsman would steer both parties away from such gamesmanship…& to ADR (Alternative Dispute Resolution, e.g. mediation or arbitration).

Dianne Stromfeld: As a board member, I learned how tough it can be just to find the right city or state agency to field questions.  Once, while pursuing tax abatement refunds, 3 separate authorities all claimed jurisdiction, yet provided wholly contradictory answers.

It’s telling that, in Nevada, more than half the attendees at ombudsman classes are board members.  The same holds in Florida.  Calls to ACCO clearly indicate that New York board members would benefit from—& want—such a single-source, dedicated agency to field their questions.

The ACCO Debate Team:

Bob Dannin—A published & active author, Bob has been Director of the prestigious Magnum Photos cooperative agency, & subsequently was professor of urban anthropology @ NYU.  He serves as a co-op Board Member at 152 East 94th St., a 105-unit pre-war building in Carnegie Hill.  Bob is a Director of the ACCO governing board.

Kevin McConnell—A partner in Himmelstein, McConnell, Gribben, Donoghue & Joseph, Kevin concentrates on tenant’s rights and co-op and condo law.  Previously, he served as Assistant Attorney General in the Real Estate Financing Enforcement Division, & in the Housing Unit of South Brooklyn Legal Services (where he is now a Director).  Kevin also served on the Attorney General’s Real Estate Financing Working Group to improve co-op and condominium offerings and enforcement.

Larry Simms—After a career manufacturing & marketing construction products, Larry founded Condo/Co-op Strategies, consulting to boards & owners on planning, operations & governance.   He served as Board Member for many years at 200 East 32nd St., a 165-unit Murray Hill high-rise condo, & was the building’s first Board President.  Larry is president of the ACCO governing board.

Dianne Stromfeld—Dianne has been a real estate broker, manager & owner; president of the Multiple Listing Service of L.I. and the Century 21 Brokers Council; & director of the Long Island Board of Realtors.  She serves on the Co-op/Condo Issues committee for the NYS Assoc. of Realtors.  Dianne founded Realty Institute, which has trained 60,000 students, & continues as its education director.  She has written several real estate texts, & lectures nationally.  Dianne is a past Board Member of North Shore Towers, an 1,844 unit co-op in Floral Park, & is a Director of the ACCO governing board.

Stephen Vernon—Steve is a manager at a very large multinational insurance company,  handling accounting for major pension and retirement plans.  He is also Board President of Nagle Apartments Corp., a 113-unit,   3-building co-op in Inwood.  He was Treasurer of the co-op before becoming President.  Steve is a member of ACCO.

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