Leni Morrison Cummins, a partner at the law firm Cozen O’Connor, notes that the timing of the amendment to the BCL was superb. “It’s a good thing that amendment went through before the COVID-19 crisis because the only option for 99 percent of boards would have been to postpone the annual meeting,” she says. But since corporate bylaws take precedence over the BCL amendment, Cummins advises caution: “If the bylaws require an in-person meeting and a board acts against its governing documents, it forfeits the shield of the Business Judgment Rule. It’s better to postpone the annual meeting than to take that risk. It’s not worth it.”
Then there are the logistical problems of a virtual annual meeting. Getting a dozen people together via Skype or Zoom is considerably less daunting than getting 500 shareholders to meet virtually at a given hour on a given date. “For larger buildings, I’m telling my board clients that we’re in a crisis and the annual meeting can wait for a few months,” says Geoffrey Mazel, a partner at the law firm Hankin & Mazel. “Besides, boards will have to establish protocols for virtual meetings. Who’s going to run the meeting? How do you handle questions? What about people who don’t have the right technology?”
Stuart Halper, the vice president of Impact Real Estate Management, agrees that logistical problems are an impediment to virtual annual meetings – a widespread preference for paper ballots is one major hurdle – but many of Impact’s 90 properties are already running their monthly board meetings remotely. And Halper thinks it’s quite likely that one day annual meetings will follow suit.
“We’ve done remote board meetings with Zoom and Skype without any issues,” Halper said during the early weeks of the shutdown. “We were able to keep the businesses rolling. Now we can take official action because you can simultaneously see and hear each other. The technology is great.”
And then there is the issue of virtual voting. “I did a lot of research on this,” says Helene Hartig, head of her eponymous law firm, “and I believe that even if you’re authorized to vote online under the BCL, you still have to pass an amendment to your bylaws permitting it. If it’s in your bylaws that you can only vote in person or by proxy, you as a board can’t elect a different method, even in an emergency. You can change the bylaws, and then for the next meeting it might be different. I think the best course of action is to adjourn the annual meeting until a majority of shareholders chooses either to change the bylaws or continue voting in the traditional manner.”
Though the pandemic has sharply reduced apartment listings – and closings – the real estate industry has been working to keep deals moving through the pipeline. To that end, Daniele Kurzweil, a salesperson at the brokerage Compass, recently arranged her first successful virtual application interview for a Tudor City co-op.
“We did a three-way Skype call between the two buyers and the board,” Kurzweil says, adding that one of the buyers was in New York and the other was in California. In years past, she says, most boards would have required the Californian to fly in for the interview. “Now that this is the only way to conduct an interview safely,” she adds, “a Skype interview will become the new normal. Once people see how easy and convenient it is, I believe it will change board interviews.”
APPLICATION PACKAGES, APPRAISALS AND INSPECTIONS
The changes might not stop there. “This is going to be a kick in the butt for boards to accept digital application packages through platforms like BoardPackager,” Kurzweil predicts, adding that the industry is still wrestling with new ways to conduct appraisals, inspections and closings during a lockdown – and after the lockdown order is lifted. “A lot of boards are limiting who comes into the building,” she says. “This is something boards need to think about. If nobody can conduct business in your building, it’s not good for your building. Boards are going to have to think long and hard about their requirements.” To the list of things boards need to reconsider, she adds the size of required down payments and the buyer’s level of liquid assets.
To get around these and other constraints, buyers and sellers are agreeing to contract modifications. “We’ve been adding flexibility to contracts,” says Leslie Hirsch, a broker at Compass. “For instance, if an outside person, say an appraiser or inspector, is unable to perform his duties, the buyer will get a contract extension of 30 to 120 days. And if a buyer contracts COVID-19, she would be able to void the contract within 25 days. If an inspector can’t get into the apartment and major defects are discovered later on, the buyer would be able to renegotiate the contract.”
Boards need to be flexible, too. Lawyers for prospective apartment buyers usually perform due diligence on the cooperative corporation or the condominium association. This involves reviewing financial statements, governing documents and board meeting minutes. The financials and governing documents have traditionally been emailed to the buyer’s lawyer, but the review of board minutes is customarily done in person in the managing agent’s office. With that practice no longer allowed, many boards and their managers are, wisely, reluctant to email the sensitive information contained in the minutes.
The law firm Gallet Dreyer & Berkey offers a four-step workaround: scan the minutes onto one large pdf document; protect the document with a password; restrict access so the document can’t be edited, copied or printed; and have the password expire after a short period of time. As a final precaution, the managing agent should require the reviewing attorney to sign a nondisclosure agreement before emailing the pdf document.
Virtual closings, known as escrow closings, have helped conclude many deals. Bolstered by an executive order from Gov. Andrew Cuomo authorizing virtual notaries, escrow closings involve email threads, exchanges of pdf’s, overnight mailings, wire transfers of funds and, in some cases, lawyers ferrying paper documents – surely the highest-paid messengers in the city. On rare occasions, the parties have gathered in a lawyer’s office, been sequestered individually in separate rooms, and instructed to wear gloves and masks and use their own pens.
“Escrow closings might become the new normal until there’s a vaccine or the pandemic is under control,” Mazel, the attorney, predicts. “When the dust settles, I think virtual meetings and closings are going to become more common.
More and more boards are getting application packages electronically. Young people are used to it. For people who are accustomed to the traditional ways of doing things, this will open their eyes to the better aspects of technology. It requires less travel, less expense and less time.”
One egg that technology won’t be able to crack, many brokers agree, is the home tour. “The reality is that nobody is buying a $1 million apartment without setting foot in it first,” Kurzweil says. “There are certain things the digital age can’t overcome.”
When the pandemic first hit, Gov. Cuomo specified which workers were deemed essential and thus exempt from work-at-home orders. Among them were delivery workers, building staffs and the crews of moving companies. But many boards acted to confine delivery people to the lobby and to unilaterally bar all move-ins and move-outs until the crisis passes. People with closed contracts who are forbidden from moving into their new apartments are, understandably, not happy.
“I’m getting a lot of calls from people who aren’t being allowed to move in,” says Hartig, the attorney. “They’re saying, ‘I’ve got a mortgage that I’m paying, I’m paying maintenance on this apartment, and nobody’s allowing me to move in.’”
But most boards are guided by the desire – and their fiduciary duty – to protect the many even if it inconveniences the few. “Boards need to decide if they want to stop all move-ins,” says Julie Schechter, a partner at the law firm Armstrong Teasdale. “There’s not a great answer for this because, technically, moves are allowed under the law right now, and people are eager to close because they don’t want their deals to fall through. But think about it. The people who are doing the moves, they’re in and out of apartments every day with different people, every day with different buildings. I hate to say it, but there’s a likelihood of spreading the virus. A lot of buildings have only one elevator, and it’s not fair to ask the residents to share the elevator with the movers. And so, boards are faced with a big issue.”
Now that most co-op and condo boards have implemented some sort of Plan B, the next big issue will be: What happens once the pandemic has run its course? Halper, of Impact, is one of many professionals who predict that the pandemic will open eyes to the many uses – and the practicality – of technology. Old-school boards that are married to paper will, according to this line of thought, be more willing to join their younger, tech-savvy counterparts in the interconnected, virtual precincts of the 21st century.
Halper offers a prediction: “This pandemic is going to forever change things. Events like this lead people to adopt new technology in order to find solutions, and more people have been embracing the technology. People are realizing that working remotely is really quite easy, for instance, and while virtual application interviews were done out of accommodation in the past, now they’re being done out of necessity. And necessity creates innovation.”