New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Just a Minute

I was just elected to the board of my co-op at the April annual meeting. When I was thinking about running for the board, I asked to review the co-op’s minutes but I got no response. When I asked again, the property manager told me to send a letter requesting the review, which I did not do. Now that I’m on the board, I would like to know whether I can review minutes and other documents and whether the board should also make them available to shareholders not on the board?

As a board member, you are entitled to review whatever documents you seek provided that it is for a proper co-op purpose. But the whole issue of the availability to apartment owners generally of board meeting minutes and other co-op documents is a sticky wicket, almost as unfathomable to laymen and counsel alike as cricket is to a baseball fan.

On the one hand, it seems fundamental that co-ops should allow apartment owners to examine anything involving the co-op that they desire. After all, they are not simply tenants bound to the co-op by standard landlord/tenant type leases. Their contracts with their co-ops are deemed “proprietary leases” confirming that they have proprietary interests in the co-op. And, of course, these apartment owners hold shares of common stock of their co-op corporations. So they seem to have status equivalent to that of the shareholders of a business corporation whether small and private or big and public.

So surely, just like all other owners of interests in valuable investments, co-op apartment owners should be allowed – and even encouraged – to monitor “company” business and decision-making and to have input into it by communicating with board members and fellow shareholders. And, after all, isn’t it true that potential purchasers of apartments – who are not even yet shareholders or even yet board approved – get to review board meeting minutes? How could it be true that they have more rights in this regard than actual shareholders?

But the co-op world – like the business world – is not so accommodating, at least not to minority stockholders, which is the status of virtually all residential apartment owners. So let’s look first at the state of the law regarding document review, and then finish with whether we should preserve and protect the traditions of trusting board members to properly run our co-ops with minimal oversight.

The first approach for an apartment owner seeking review of co-op minutes and other documents is usually an oral request to the co-op’s property manager. Typically, the owner tries and fails once or twice before getting any sort of response. In the interim, the property manager presumably sought guidance from the co-op president, or other board liaison, who, if harboring any reservations, recommended consulting with the counsel. (The more controversial the apartment owner making the request, or the more immersed the board currently is in controversial matters, the more likely the co-op counsel is consulted at an early stage. Also, co-op counsel advice on this type of issue is short and cheap, if not always helpful and accurate.)

The second approach for the apartment owner is submitting a demand in writing, which most well-counseled boards will require before directly responding to a request to review minutes or other documents. This has several purposes, all perfectly legitimate if not admirably salutary. First, it tests the owner’s degree of commitment to conducting the review. Some simply will not go to the trouble of submitting a request in writing – after all, for many they’re just dealing with their single largest personal asset. Co-op boards shed few tears when apartment owners show such little resolve.

The writing requirement also slows down the process. Frequently, an apartment owner will make a request just weeks or days before the review is desired. So, for example, an apartment owner might want to review the board minutes in order to mount a campaign to run for a board seat. But by the time the oral request is first made, ignored, and made again, and then the writing is requested, made, sent to the lawyer and the board, and responded to, many weeks may pass and an election may have occurred and there may be a new board (so you may have to start the process again). Needless to say, once that occurs, apartment owners frequently do not follow through – even assuming that the board’s written response to the apartment owner’s written request offers to provide some limited access.

Most significantly, the writing requirement establishes precisely what documents the apartment owner is seeking and, if the owner is savvy, includes a declaration of the purpose for which the review is sought. This is significant for two main reasons. First, under current law, there are limited categories of documents that a co-op is required to allow an apartment owner to review. The letter permits the co-op to determine whether it has the right to deny the request in whole or in part. Second, and also under current law, the apartment owner arguably must have a legitimate corporate – as opposed to personal – purpose in seeking review of at least some of the documents for which review is permitted. The letter gives the owner an opportunity to declare that purpose, which in some cases must be done under oath.

Success for the apartment owner is having the co-op’s counsel or other representative respond to the apartment owner’s written itemization of the documents sought and the purpose for which they are sought. But the apartment owner will consider the co-op’s response perfectly satisfactory about as often as pitchers pitch perfect games.

This results from one stunning reality: with one major qualification, neither the law nor the co-op’s governing documents (proprietary lease, bylaws, and the rest) require the co-op to allow an apartment owner to review the minutes of board meetings. And yet, it is review of just those minutes that is most often sought. But there is a main exception that applies to board meeting minutes and all other documents that an apartment owner may seek.

A party to a litigation involving a co-op may be entitled to review co-op documents, including the minutes, provided they are “material and necessary” to the litigation and not protected by attorney-client – or some other – privilege. The practical and legal ability of a co-op board to deny an apartment owner’s request to review board meeting minutes does not mean that these minutes, or the deliberations underlying them, are in any way “privileged” against disclosure. In the context of a litigation, the only likely privilege justifying non-disclosure of those minutes and deliberations would arise if the co-op’s attorney was present and deemed to be giving legal advice to the board regarding the matters at issue, provided no third parties were also then present to vitiate the privilege. Board meeting minutes or deliberations are not privileged in their own right.

So board members beware: what you say and what finds its way into board minutes is open for review in a litigation, except in the highly unlikely event some are protected by the attorney-client privilege.

So let’s get back to ordinary co-op existence: what happens when an apartment owner simply wants to review board meeting minutes and other documents to help monitor board decision-making for the good of all shareholders? How could it be that these documents are all essentially deemed confidential (unless there is a litigation to which some are specifically material and necessary?)

Let’s start with the fact that co-ops are corporations, which in New York are governed by the Business Corporation Law (BCL). This law was enacted and is maintained with a distinct bias in favor of shareholders who control corporations, and thus serve on boards and typically have no need to secure special permission to review board meeting minutes or other corporate documents. In other words, the BCL, and for that matter co-op governing documents, are not designed or intended to encourage regular or easy participation by minority shareholders in board decision-making.

BCL 624(b) requires corporations to allow shareholders to review only two categories of corporate documents: “minutes of the proceedings of its shareholders and record [i.e., list] of shareholders...”

Isn’t there some entitlement for shareholders to review board meeting minutes, which, after all, BCL 624(a) requires corporations to keep? Why are boards required to keep them if not for shareholder review? Guess again. The law plainly mandates review only of minutes of shareholders’ meetings. For co-ops (and other corporations), those minutes almost always include only brief reference to results of the year’s annual election of directors and thus are wholly irrelevant to any apartment owner oversight of board decision-making.

As if that limitation were not enough, the BCL also provides that shareholder review of shareholder meeting minutes and shareholder lists must be “for any purpose reasonably related to a person’s interest as a shareholder” and that a request for even those limited documents may be denied if a shareholder refuses to furnish “an affidavit that such inspection is not desired for a purpose which is in the interest of a business or object other than the business of the corporation ...”

This adds additional burden and delay to the review quest and leaves open the door to a protracted dispute over whether the shareholder’s purpose conforms to the statutory requirements. But, of course, these disputes rarely occur, at least in the co-op context, because an apartment owner will simply not find it worth the trouble to engage in this process to acquire the right to review largely meaningless shareholders’ meeting minutes.
The other source of an apartment owner’s entitlement to review co-op documents is the proprietary lease, which usually provides the following or similar language: that the co-op “shall keep full and correct books of account, and the same shall be open during all reasonable hours to inspection by the [apartment owner] or a representative of the [apartment owner].”

But this seems limited to financial records and never, in my experience, expressly includes board meeting minutes. And there is a dearth of court cases interpreting this language. The reason for this is probably that few situations will arise in which an apartment owner will sue solely to urge a broader interpretation of this language, or that of the BCL. Rather, the issue of what documents are available for review will arise in the context of a litigation involving a dispute unrelated to the scope of review. And, in that context, the rules apply of what is “material and necessary” for discovery, which opens the door to review of many otherwise unavailable documents.

So, should we accept the status quo? Or just let them see the minutes? Some boards voluntarily allow apartment owner review of board meeting minutes and other documents beyond simple financial records. Some even post or circulate them and even invite owners to attend board meetings. Many of those are careful to keep their minutes “bare-boned” and to go into “executive session” when discussing private matters.
What’s wrong with a co-op in which apartment owners are allowed to know what’s going on? Let me count the ways:

It will further inhibit board deliberations. At least in theory, when making decisions, boards should strive for an active and free exchange of ideas. But with our litigious society, boards are frequently counseled to keep discussions “all business,” and free from personal opinions (i.e., biases) and to eliminate from minutes all extraneous discussion. If the environment changes to one in which board members are subject to regular review of minutes by overly aggressive apartment owners, co-op board meetings may evolve to the point that nothing significant is discussed for fear of disclosure.

It will invade the privacy of all apartment owners. At present, apartment owners are secure in knowing that most boards vigilantly protect disclosure of board meeting minutes and other co-op documents, except for review of shareholder meeting minutes and lists that the BCL mandates, and of the “books of account” that co-op proprietary leases allow. This is good because many private matters are contained in the discussion of the inevitable controversies with residents and in the records of apartment sales, sublets, and alterations. If boards loosen the reigns on disclosure of documents, then privacy levels will substantially diminish.

It’s not the way businesses are run. Whether small or large, private or public, most businesses are usually managed by an oligopoly of managers who are accountable at most through financial statements issued on a quarterly basis. This maximizes efficiencies, as managers are not weighed down responding to regular and persistent questions and second-guessing regarding day-to-day or long-term management decisions. Co-ops are run by their boards, whose members serve without pay, with little approbation, and with recurring doubts about whether it is really worth it. If apartment owners burden board members with overly intrusive review, they may all hang up their cleats leaving their co-ops to be run by the gadflies, who are not necessarily suited for leadership roles.

So in the end, I guess I’m for keeping the long-standing status quo. We don’t want apartment owners micro-managing day-to-day operations. Let’s let boards do their jobs.

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