Creates the office of the cooperative and condominium ombudsman, authorizes the residential unit fee

Summary of provisions

Section 1 of the bill would add a new article 49-C to the Executive Law to create the Office of the Cooperative and Condominium Ombudsman within the Department of Law. The Office would be headed by an Ombudsman who is appointed for a fixed term by the Attorney General. The Attorney General would be responsible for the oversight of the Office. The Ombudsman may be removed by the Attorney General for cause, after being given an opportunity to be heard. The Office would work to educate shareholders of cooperatives and owners of condominiums, their boards of directors and boards of managers, professionals working with and for such boards, property managers, and other interested parties about their legal rights and responsibilities under federal, state and local laws and regulations. Other responsibilities of the office would include: to prepare educational and reference materials, to organize and conduct meetings and public hearings, to provide mediation and other forms of alternative dispute resolution, to offer monitors and vote counting services to assure fair elections for board membership, and to provide advice to the Governor and Legislature regarding new and existing legislation which affects cooperative shareholders or condo- minium owners. The Ombudsman would have the power to subpoena and enforce the attendance of witnesses, administer oaths or affirmations and examine witnesses under oath, and require the production of any books and papers deemed relevant to any dispute rending before the office. The Secretary to the Governor is to ensure that all state agencies provide the Ombudsman with assistance in advancing the purposes of the Office, and to assure that the activities of the Office are fully coordinated with the activities of state agencies providing related services.

Section 2 of the bill would add new section 186-g to the Tax Law to create a new residential unit fee. Each cooperative corporation and condominium owners association would be required to pay an annual fee of six dollars per year for each residential unit located in a building or buildings owned or operated by such corporation or association. The fee would be paid to the Department of Taxation and

Finance. All revenue collected by the Department of Taxation and Finance would be paid to the State comptroller to be deposited into the Office of the Cooperative and Condominium ombudsman Fund.

Section 3 of the bill would add a new section 81 to the State Finance Law to establish a new Fund in the custody of the State comptroller to be known as the "Office of the cooperative and Condominium Ombudsman Fund. All monies in this fund would be kept separate and apart from other monies in the custody of the State comptroller. The Fund would be allocated and spent by the Department of Law solely for the staffing and administration of the Office of the cooperative and Condominium Ombudsman.

Section 4 of the bill provides for the effective date.

Justification

The rights of condominium owners and cooperative shareholders are derived from a complex series of laws, regulations, and individual building by-laws and other corporate documents. Offerings of condominiums and cooperatives are regulated by the Attorney General under the General Business Law, a statute designed to protect potential buyers from fraud through detailed disclosure requirements. Once cooperative and condominium plans are declared effective, condominiums fall under the New York State Condominium Act and cooperatives fall under the state's Business Corporation Law - the same statute which regulates all the state's corporations. Although both of these statutes grant owners and shareholders some rights, their primary objective is to require that cooperatives and condominiums simply address certain issues in their operating documents: for cooperatives, the proprietary lease, house rules, certificate of incorporation and by-laws for condominiums; the unit deed or declaration, house rules and by-laws of the condominium association.

These multiple laws and regulations governing the rights of cooperative and condominium residents, shareholders, unit owners, association members, and boards of directors are frequently difficult to navigate and comprehend. This is particularly true in the case of cooperative buildings since they are governed by New York State Business Corporation Law which was not designed to regulate residential real estate. Cooperative shareholders are often unaware that they do not own real property, and are considered tenants of the corporation that owns the building where they live.

The boards of directors in cooperatives, and boards of managers in condominiums, have a great deal of discretion over most issues involved in the daily management and operation of their buildings. While many cooperative and condominium boards act in the best interest of their buildings, are financially prudent, and responsive to the needs of shareholders and unit owners, significant problems arise for residents when this is not the case. Many difficulties also emerge when boards of directors and managers are unable or unwilling to remedy disputes between residents which often leads to the diminution of quality of life in the building and significant tension between neighbors. Disputes regarding transparency, finances, board elections, management decisions, rules and regulations, construction,

and other issues between individual residents, as well as between residents and their boards, are all too common.

Because there is no government agency or other entity which oversees the operation of cooperatives and condominiums, shareholders and unit owners are left with only two options when serious problems develop: to organize other residents to change the board of directors or managers, or to initiate legal action against the board or another shareholder or unit owner.

Understandably, neither of these options is easy or appealing for most residents. Changing the membership of the boards of directors or managers often takes an extended period of time, and is difficult or even impossible in buildings where the original building sponsor or other party controls the majority of votes. As a result, problems in cooperative and condominium buildings all too frequently result in lengthy, expensive, and acrimonious litigation which harms all parties involved. Such litigation diverts resources which could be better utilized to provide well maintained buildings and grounds for the common good of the residents. Litigation between neighbors frequently detracts from the quality of life in buildings, harms the sense of community, and ultimately results in greater expenses for everyone since boards have to pass the costs of legal fees along to all residents. In cases where shareholders and unit owners do not have the economic resources needed to pursue litigation, problems frequently remain unresolved for years.

Several other states, such as Florida, Nevada, Texas, and New Jersey have created condominium Ombudsman Offices to address similar challenges in their states. New York is unique among the states in having both cooperative and condominium housing. In 2008, the Florida Condominium Ombudsman's Office logged 16,000 phone calls regarding condominium owner disputes and questions. The Nevada Ombudsman Office also received a large number of requests for assistance. The Ombudsman Offices in these states provide general education to condominium owners, monitor board elections, and offer alternative dispute resolution processes that provide a fair and inexpensive means for unit owners to resolve disputes between one another or with their condominium associations. Responses to the Condominium Ombudsmen Offices in these states have been overwhelmingly positive and has led both Florida and New Jersey to recently expand the powers of their Offices. Additional states are in the process of considering legislation to create their own condominium Ombudsman Offices.

New York State has one of the largest, if not the largest, number of cooperatives and condominiums in the nation. In parts of the state, cooperative shareholders and condominium owners substantially outnumber owners of single and two-family homes. These residents would see significant benefits from the creation of a New York state cooperative and Condominium Ombudsman Office.

Legislative history

2010: S.7958-A

Fiscal implications

None. The Office of the Ombudsman will be fully funded by the creation of the six dollar residential unit fee.

Effective date

This act shall take effect on the one hundred eightieth day after it becomes law.