Non-Resident Directors Spark Debate in Lower Manhattan Co-op

At a large co-op in Lower Manhattan, one of the nine board members recently sold his apartment and moved to another state. A second member is living in a foreign country with his family and subletting his apartment, saying he will eventually return to the building. Both are still serving on the board of directors. Is this legitimate? What can shareholders do if they're unhappy with the arrangement?

The law does not dictate that co-op directors must be residents of the building, or even shareholders in the cooperative, replies the Ask Real Estate column in The New York Times. However, a cooperative’s governing documents could contain such qualifications and requirements.

Start with the bylaws. Do they allow people who don’t live in the building to serve on the board of directors? Do they require shareholders who have sold their shares to relinquish their board seats?

It’s possible that the bylaws are silent on these questions. But if residency is required, shareholders could compel the resignation of the nonresident directors, says Leni Morrison Cummins, chair of the condominiums and cooperatives practice at the law firm Cozen O’Connor.

The situation at this Lower Manhattan co-ops raises a larger issue facing many co-ops: Is the board serving the interests of the residents, or of investors? Over time, cooperatives have allowed shareholders not just to have their primary residence elsewhere or rent to a subletter, but to buy shares as investors.

“This," Cummins says, "has led to many cooperatives having split populations: one of residential shareholders and one of investor shareholders.” Typically, she adds, resident shareholders want to invest to make their daily lives better and to maintain restrictions on occupancy and sublets. Investor shareholders, on the other hand, often prefer to keep costs down and to loosen restrictions on occupancy and sublets.

Shareholders can vote to create a residency requirement, but if your building has many investors, this could be difficult. “If the shareholders don’t amend the bylaws to restrict board membership, try to develop a meaningful relationship with the nonresident board members and share your concerns,” advises Andrew Bart, senior counsel at the law firm Kagan Lubic Lepper Finkelstein & Gold.

And remember that a housing cooperative is a democracy, so disgruntled shareholders can participate in the next election. “Campaigning and collecting proxies can take some effort,” William Geller, counsel at the firm Braverman Greenspun. “But if the (shareholders) wants to change the direction of the building, that can be a very effective way to get things done.”