Beware: Broker on the Board

Bruce Robertson believes that having a real estate broker on a co-op or condo board can be a good thing. “He or she can bring valuable information about the market to the discussion,” says Robertson, who is an interested party: he’s an associate broker at the Corcoran Group. Still, he served without a complaint for two years on his co-op board at 800 Riverside Drive at 157th Street. “It goes without saying that I recused myself from discussing or voting on any properties that I handled,” he says.

Do you want brokers on your board? They face an obvious conflict of interest because the brokerage commission they receive from a sale is not shared by others in the building. As attorneys Eva Talel and Richard Siegler of the firm Stroock & Stroock & Lavan wrote in a recent issue of The New York Law Journal, under the Business Judgment Rule, “board members are fiduciaries and therefore… must make such decisions and take actions which are in good faith and in the best interest of the cooperative or condominium community as a whole, and not for a board member’s personal interest or gain.” Having a broker on the board can lead to choppy waters. For instance, a director who brokers an apartment sale and later participates in a review of the purchase application might not be protected by the Business Judgment Rule, potentially leaving the board open to legal liability.

What steps can your board take to protect itself against conflicts? According to Talel and Siegler, brokers should always disclose their interest in a unit up for sale. The best course of action would be for a director to recuse himself or herself from the board’s discussion of the purchase application. If the broker doesn’t, the board can appoint an independent committee to review the transaction and set up a conflict-of-interest policy.“With the right protections in place, I think you can have brokers on the board,” says Robertson. “It is, however, a little unfair to single out brokers. Attorneys sit on boards all the time and sometimes they can have just as many conflicts.”