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A lot of boards want to hang on to their power. Co-op shareholders have a mechanism for getting around that, but a lot of condo unit-owners do not.
AUTHORAnna Guiliano, Borah, Goldstein, Altschuler, Nahins & Goidel
A lot of boards want to hang on to their power. Co-op shareholders have a mechanism for getting around that, but a lot of condo unit-owners do not. Tell us about that.
Most condominiums in New York State are not incorporated. They're unincorporated associations, which means that they're governed not by the Business Corporation Law but by their declaration and bylaws. Generally speaking, most bylaws have a mechanism that stops short of what the BCL provides for co-ops. Most condominiums require a certain percentage of unit-owners to make a demand.
For a new election?
Yes. If the board hasn’t called a new election in more than 13 months since the last election and the unit-owners don’t like the board, they can demand a new election if they have the support of a certain percentage of unit-owners, usually 25 percent. It’s up to the board whether to respond to that demand or not.
What if the board doesn’t respond?
The only remedy under most bylaws would be to commence a Supreme Court action and force the board to hold a new election.
Lawsuits are expensive. Nobody wants to pay that kind of money for that kind of battle. Is there a workaround?
It all depends on whether it's an unincorporated association or an incorporated association. There are condos that are incorporated, sort of like co-ops. That was the first question I asked the board: Are you incorporated? And they were. Wonderful. Since they’re incorporated, the Business Corporation Law applies to them, and there’s a provision in the BCL – 603 – that says 10 percent of the shareholders can make a demand.
Ten percent is a very low bar.
It is, and once the board receives the demand for an election, the secretary of the board has to schedule and send notices of a special meeting for an election. So this is a tool unhappy condo unit-owners can use to force an election and get rid of an unwanted board, so long as they’re incorporated.
Are you working on a case like that right now?
I am. We’re in the very early stages. We're at the point where we are drafting a demand. My hope is that the board will schedule a special meeting for the election and comply with it. And if they don't, then we could step into the shoes of the board and schedule and notice it ourselves without quorum requirements, which is what BCL 603 provides.
Then you can run an election and get rid of the board?
Exactly. And if the board has a problem with it, now they have to be proactive and commence their own suit against us, the unit-owners, to invalidate the election. So we’re forcing the board to be proactive.
It sounds like these unhappy unit-owners are going to get an election out of this.
I would hope so, yes.