Ron Egatz in Board Operations on 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.
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