While essential to the successful operation of all cooperatives or condominiums, governing documents are often only glossed over by otherwise well-intentioned board members, residents and property managers leading to potential pitfalls. As a result, it is often suggested by counsel that boards revisit, and in some cases relearn, the various components of this all-important and varied documents.
The first step is differentiating between cooperatives and condominiums, explains Attorney Jennifer Alexander, Esq., a partner with the Randolph-based law firm, Griffin Alexander, P.C. “Co-ops are governed by a proprietary lease, a certificate of incorporation and a set of bylaws. A condominium is traditionally governed by a master deed and bylaws. Several condos have also supplemented these documents with a set of rules and regulations,” she says. Also, when you buy a condominium, you will receive a declaration of covenants, conditions and restrictions (CC&R’s) along with the bylaws. The declaration will be recorded with the recorder of deeds in your town and county, while the bylaws, which govern the operation of the board, will typically stay within the building.
“While the documents are slightly different for each, they both accomplish the same thing, which is setting the framework for how the property is going to be managed and maintenance responsibility.”
While the governing documents are different, there exist overlaps or provisions common to each, explains Attorney J. David Ramsey with the Morristown-based law firm, Becker & Poliakoff. “For both types of organizations, the certificate of incorporation is similar. While this document is usually overlooked because most modern certificates of incorporation are pro forma, the fact is that some contain important provisions concerning the powers of the governing board or of the corporation itself. In the hierarchy of governing documents, the certificate of incorporation sits above the bylaws and can have provisions that might otherwise be found in the bylaws if they weren’t in the certificate of incorporation,” he continues. “For instance, recently we had a matter in which the bylaws did not expressly give the governing board the power to take a loan. But the certificate of incorporation did, easing the transaction with the lender.”
Common Questions Answered
Often times a well-intentioned board member may hear terms they believe they fully understand. While this may be true for some, other new board members often play catch-up making the first weeks and months an educational experience. For example, a common question is: What’s a proprietary lease, and why is it called that? They may also inquire: Why don’t co-op owners get a deed?