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It’s routine. A prospective buyer wants to know what sort of building he is considering buying into, and what better place to find that out than in the board minutes? Consequently, he sends in an attorney, or a paralegal, or a broker, or sometimes employees from other companies acting on behalf of a buyer.
The routine went cloak-and-dagger within the last eight months, however, as board minutes were copied without authorization by a company purportedly representing a buyer. A major New York City management firm discovered this buyer’s representative, without authorization, scanning full sets of minutes into a portable scanner.
Why? One theory is that it could have been to create a library of minutes from a group of buildings. That way a company can advertise itself to prospective buyers as being the only company with the “inside scoop.”
“It’s like getting inside information when you buy a stock,” says attorney Eva Talel, a partner at Stroock & Stroock & Lavan. “I assume that they are going to do this to help them make money, saying, ‘We possess a resource of about 50 or 100 – or whatever – buildings in New York City that no one else has,’ because board minutes typically reflect a building’s operations and board deliberations and things that as a general matter are confidential. Originally, I think that they [the managing agents] tripped over the fact that this was being done. In conversations with their colleagues it became more apparent that this was an organized situation.”
The discovery of the illicit scanning, says an executive at the management company that discovered the culprit, led to a major change in the firm’s policy. Now, anyone who wants to look at the minutes has to sign a document defining the scope of the review. It is very narrow, essentially saying you can read it, you can take some notes, but you can’t remove it – and you certainly can’t copy it.
The situation has reportedly happened at a number of firms, and it has occurred so frequently that the Real Estate Board of New York (REBNY) is proposing issuing a document that all its member management organizations can use to protect their shareholders/unit-owners. The affidavit essentially says that before anyone can see board meeting minutes, he or she must read and sign the document, identifying his/her firm and stipulating that the sole purpose for viewing the minutes is for due diligence, that the person will not use any recording, scanning, or copying devices, and will not share the information with anyone other than those who need it for the prospective purchase.
“Unless they sign, they will not be afforded access to minutes,” says Talel, who is an attorney for REBNY’s Residential Management Council.
Talel could not say how many managing agents had been hit by the problem but described it as “widespread,” and notes that REBNY would not have taken action if it had been an isolated incident. “There was apparently a run on this kind of action going on,” she says. “Once people began to realize it was going on, they tried to do on their own what they felt they could do to keep it from happening. [REBNY] decided [everyone] needed a uniform approach to this.”
Talel says that REBNY is less concerned with uncovering who was doing the scanning and more focused on preventing it in the future. The legal affidavit was expected to be presented to the residential management council by the end of February. “We’re not concerned with punishing anyone,” she says. “We just want to prevent this.”