New York's Cooperative and Condominium Community

HABITAT

BOARD OPERATIONS

Bills Seek to End Conflicts of Interest on Co-op and Condo Boards

Ron Egatz in Board Operations on June 29, 2017

New York City

Conflict of Interest
June 29, 2017

Smart co-op and condo boards treat conflicts of interest – even the appearance of conflicts of interest – the same way they treat the bubonic plague. They want absolutely nothing to do with them.

The reason for this became apparent recently when a shareholder in an Upper East Side co-op sued his board over a disputed terrace repair. While digging through the co-op’s records, the aggrieved shareholder learned that the board had hired a roofing company owned by the board president’s brother-in-law – an arrangement that was not disclosed to shareholders. The co-op’s attorney quickly pointed out that the board president had recused himself from the vote to hire the contractor. But the appearance of a possible conflict of interest was impossible to ignore.

Two bills introduced recently in the state General Assembly by two Brooklyn legislators attempt to eliminate conflicts of interest in co-op and condo boards. Last week, bill S6652A was passed by the state Senate and returned to the Assembly in amended form for a vote. Introduced by Senator Martin Golden, the goal of the bill was to ensure co-op and condo boards of directors are aware of certain laws relating to conflicts of interest. It amends the existing Not-For-Profit Corporation Law by requiring annual reports be submitted to co-op shareholders, condo unit-owners, and the Attorney General, identifying all votes on contracts. A similar bill was introduced by Assemblyman Steven Cymbrowitz.

In his Memo in Support of the bill, Golden states: “Cooperative housing boards of directors are supposed to be representative of the housing development and are trusted with promoting the best interest of the co-op tenants. However, that is not always the case. In some instances, a member of the board may be benefiting financially or by other means when a contract between a cooperative housing development and a third party is entered into. This bill would establish a notification requirement so members of a co-op board are aware of existing laws. In addition, the bill would require disclosure of any contracts that were voted on… That way, co-op tenants as well as the board directors can be sure of the integrity of the management as it relates to contracts.”

Not everyone thinks the proposed law is a good idea. “I think the well-run condominiums’ and cooperatives’ conflicts are already disclosed in the minutes of any meeting where there’s a conflict or a perception of a conflict,” says Mary Ann Rothman, executive director of the Council of New York Cooperatives and Condominiums. “I think this [proposed legislation] invites an enormous amount of unnecessary and redundant record-keeping and paper – or, one hopes, PDFs – to be sent to every shareholder or unit-owner. I don’t think it’s very useful legislation at all.”

Deborah Koplovitz, an attorney at Anderson Kill, has a different take. “This act, even if signed by the Governor, may not apply to a condominium, since those buildings are formed pursuant to the Condominium Act and not the Business Corporation Law,” she says. “Assuming the bill is signed, it appears to address oft-heard complaints about a lack of transparency in co-ops and condos, and may serve as a deterrent to interested director transactions – or at least provide more disclosure to owners. Since transparency helps to foster better governance and harmony among owners, a condominium may still want to provide this disclosure as well, both as a matter of good governance and to avoid any claims of non-compliance.”

The offices of Senator Golden, Assemblyman Cymbrowitz, and Governor Andrew Cuomo did not respond to requests to comment for this article.

Ask the Experts

learn more

Learn all the basics of NYC co-op and condo management, with straight talk from heavy hitters in the field of co-op or condo apartments

Professionals in some of the key fields of co-op and condo board governance and building management answer common questions in their areas of expertise

Source Guide

see the guide

Looking for a vendor?