Limits on Voting

BUSiNESS CORPORATION LAW, SECTION 613

There is noThing more disruptive and controversial in a co-op or condo than the annual voting process. There is tremendous room for impropriety. Knowing your rights is the best way to make sure that the election is fair and that candidates win or lose on the merits. 

All shareholders in a cooperative and all unit-owners in a condominium have the right to vote at elections. The annual meeting and the elections that follow form the critical component of voter input into the operation of the co-op or condo. Shareholders vote according to the number of shares they own; unit-owners vote based on their common interest in the condo. (Some buildings allot one vote per unit, an arrangement that has to be spelled out in the co-op’s certificate of incorporation or in the condo’s bylaws.)

A board can’t exclude the right to vote by proxy, which is granted in the Business Corporation Law. A proxy is a way for an individual who can’t attend the annual meeting to vote. That person fills out the proxy, which is submitted to the board before the election. There’s no particular form; you can write it on a piece of paper. You’re allowed to submit it by fax or send a copy, as long as it has a signature. You can even send it via email, as long as you can authenticate the sender’s identity.

Problems arise when boards, inspectors, or managing agents try to impose additional rules to limit an individual’s right to vote – and, in many cases, even the right to run for the board. It’s not uncommon for boards to require that the proxy be notarized. There’s no such rule. It’s not proper. Theoretically, you can impose such a rule by amending the certificate of incorporation, but you can’t otherwise circumscribe the right to vote by proxy.

You can circulate a proxy at any point before the annual meeting. Generally, if it doesn’t provide an expiration date, the rule is that it’s good for 11 months. That way, an insurgent group or an individual who doesn’t want to rely on notice from the board can start going door-to-door – without waiting until 10 days before the gathering, when the board sends out the meeting notice and the proxies.

Some boards say, “If you’re not in good standing, you cannot vote.” What does good standing mean? In some cases it’s like Justice Potter Stewart’s famous definition of pornography: you know it when you see it. If a person hasn’t been in arrears for a year, we’d all agree that that person is in good standing. But what happens if there are just late fees on their maintenance bill? Or there are other minute deviations from the requirements of the co-op? Oftentimes, this is the subject of great dispute. If it’s a close election, disallowing votes can alter the results.

I have seen many cases where boards try to impose rules. For instance, two weeks before the election, the board changes the bylaws, requiring that you have to be a resident to vote. Or they provide that you can’t vote if you were in arrears more than once over the last three years. Clearly, that’s a situation where the board is trying to preclude someone from voting or running for the board. It’s unenforceable, and the courts are going to look askance at it.

One of the biggest issues – and the source of much litigation – is that sponsors can always vote. The question is, to what extent? The section of the offering plan called “Apartment Corporation” usually determines whether or not a sponsor can vote for all candidates and openings on the board, or whether there’s a limit on those rights.

Sponsors cannot control the board of directors indefinitely. The provisions of the offering plan and perhaps the bylaws provide specific limitations on the number of candidates for whom the sponsor can vote. So having a sponsor who votes regularly at an election and has 30 percent of the shares is going to have a disproportionate effect on the outcome. Individuals who are candidates for the board should be concerned with how that vote goes, particularly if they’re not in the good graces of the sponsor. Sponsors, whether directly or indirectly, often wield unreasonable control.

In sum, the courts require not only adherence to rules that are applied by the Business Corporation Law, but also that the election be fair. Courts have significant authority to set aside an election that smells of impropriety. Maybe the managing agent who’s supportive of a particular board member is doing the counting, to the exclusion of other individuals. There is a lot that can go wrong. You should learn your rights, and then the election will truly reflect the will of the shareholders.

Abbey Goldstein is a partner at Goldstein & Greenlaw.