Paula Chin in Board Operations on May 14, 2019
Spring is in the air, which means the annual meeting season for cooperatives and condominiums is in full swing. There are four critical steps that will ensure that your annual meeting avoids hard feelings and legal challenges. Here are the first two.
Step One: 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 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 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, says there are situations when it might be appropriate to provide 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.
Step Two: Proxies. 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.”
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.”
Coming soon: Steps Three and Four: achieving a quorum and counting the vote.
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