Here are four critical elements that, if handled correctly, will ensure that your annual meeting avoids hard feelings and legal challenges.
1. Meeting Notices
Distributing a written document specifying the place, date, time, and purpose of the annual meeting seems simple enough. But close attention must be paid.
“I can’t tell you how many times I’ve seen buildings send out the previous year’s notice but forget to update it,” says Andrew Brucker, a partner at the law firm of Armstrong Teasdale. “For example, the date will have been changed, but not the year.”
Failing to serve the notice within the required time frame is another common mistake. Whether they are hand-delivered, snail-mailed or sent electronically (leaving them with the doorman or under the door is not acceptable), notices typically may not be served more than 40 nor fewer than 10 days in advance of the meeting. “Still, specific provisions in each building’s bylaws are slightly different, and boards that don’t review them can end up missing a deadline,” Brucker says. “All it takes is one shareholder who’s a stickler for technicalities to complain, and the results of the whole meeting can be legally challenged.”
As for stating the purpose of the meeting, deciding how much detail to include can be a delicate balancing act. Brucker believes boards should do only what’s required – namely, announce that there will be an election of directors, as well as any other issue that will require shareholder or unit-owner approval. “It’s not a good idea to list the whole agenda,” he says, “because if you deviate from it, someone will invariably object.” On the other hand, Lisa Smith, a partner at the law firm Smith, Gambrell & Russell, advises providing more than the bare minimum. “You might want to include financial statements if a maintenance increase is coming up, or provide a layman’s explanation if you’re voting on amendments to the bylaws or proprietary lease,” she says. “It’s not necessary, but if you don’t translate the legalese, people can get confused.”
In New York City, where it’s common for about half of the shareholders or unit-owners to show up for annual meetings, the proxy form – a written statement by a shareholder authorizing a third party to vote his or her shares – plays a crucial role. It’s also ripe for abuse. “There has been a huge increase in fraudulent proxies, and boards should be on the lookout,” says Eric Goidel, senior partner at the law firm Borah, Goldstein, Altschuler, Nahins & Goidel. “If someone shows up with a stack of 50 proxies all dated that same day, that’s a red flag, since it would be impossible to contact that many shareholders right before the meeting.”
There are steps boards can take to ensure the validity of proxies. “Some buildings are pulling together signed pages from the proprietary leases or a prior year’s proxy forms so they can verify signatures,” Goidel says. “You can have floor captains, who are much more aware of what’s going on with their neighbors, advise the board if a shareholder is away and they suspect someone is submitting a proxy in their name. Some places are creating a kind of watermark or coding system on the proxies, so they’ll know if an owner submits his own document, which could be a warning sign.”
Shareholders should be encouraged to mail their proxies in to help curb abuse. “We include a memo with the meeting notice and proxy form that gives a little tutorial on how to safeguard your vote,” says attorney Adam Finkelstein, a partner at Kagan Lubic Lepper Finkelstein & Gold. “Educating owners is the best defense.”
Boards also need to know how to recognize a good proxy when they see one. “People often think that when an apartment is owned by two people, the proxy has to be signed by both, but that’s not true,” says Brucker. “And when a shareholder dies, an executor can vote for them. Boards must know the law so they don’t mistakenly invalidate proxies.”
New York law states that a quorum is achieved if fifty percent plus one of the co-op’s total shares are present, either in person or by proxy. Without a quorum, an election cannot be held. But because of owner apathy and a rise in absentee owners, boards are finding it increasingly difficult get a quorum. “When that happens at a meeting, we take a 10-minute break and ask everyone to go knock on their neighbors’ doors,” says Brucker. “A lot of buildings have floor captains do this, but spreading out the responsibility is even better, and when you’re close [to achieving a quorum], it very often works.”
If it doesn’t, boards can formally adjourn the meeting to a future date. “It’s a good idea to anticipate problems and have a specific day that you can announce then and there,” Brucker adds. “Otherwise, the law requires you to send out a whole new notice, which can be costly and time-consuming.” If a meeting is reconvened and the numbers still come up short, boards can call for a special session with the sole purpose of electing directors, or consider lowering the quorum to 33 percent, which Brucker says more buildings are now doing.
What can be done to get people to show up the next time? “You could put something controversial on the agenda, like proposing your building go smoke-free, which will stir up interest and get them in the door,” says Goidel. For his part, Finkelstein suggests enticements, such as raffling off gift cards, flat screen TVs, or turkeys at the holidays. “No matter what you do, it’s hard to motivate people to get involved,” he says. “Not reaching a quorum is a legal problem, but there’s no legal solution.”
Still, it’s not the end of the world, adds Smith. “Some buildings don’t get them for decades,” she says. “It can actually be a sign that yours is running smoothly.”
4. Counting the Vote
An accurate vote count may be the single most critical – and volatile – ingredient in a co-op or condo’s annual election of directors. While it’s relatively easy to do in smaller buildings, boards at larger properties, especially when the election is contentious, must proceed with caution to avoid missteps.
“Most managing agents show up with a laptop loaded with an Excel spreadsheet that can tabulate results with a click,” says Smith. “But even if the bylaws don’t require it, if someone requests it, you should appoint inspectors and have them sign an oath to properly execute their duties. I usually add a sentence about keeping votes confidential, and I tell boards to have inspectors from each faction – not because you need that many eyes but to give people peace of mind that nothing’s been rigged.”
Co-op boards should also do a close reading of their certificate of incorporation. “That’s the only way to know if your building has cumulative voting,” Brucker explains. “If there are three candidates, someone with 500 shares can cast 500 votes for each person or give all 1,500 to one person. A board can be counting incorrectly for years until the day comes when a shareholder catches the mistake and takes it to court.”
Above all, boards should not yield to pressure to declare the winners on the spot. “I had a case where an announcement was made at the meeting, and the manager realized the next day he had a dozen proxies he forgot to count,” Brucker says. “A notice of correction was sent out, but the law says results are official once they’re announced, even if a mistake was made.”
Short of hiring a company like Honest Ballot to run the whole process, the proper protocol, says Smith, is to “seal up the proxies and ballots, let the manager take them back to the office, do the count the next day, double- and triple-check it, and have inspectors certify the results. That buttons everything up and saves a lot of angst.” And what’s a board to do if the vote is mishandled? “Void the meeting and the results, and start over again,” says Brucker. “Don’t fight it in court. Just do what’s right.”