Lisa A. Smith in Legal/Financial on November 27, 2017
This article appears in the special November issue of Habitat, “Governing Powers Through a Legal Lens.”
The bylaws of a condominium are self-governing documents. They address how the board administers policies and oversees the maintenance and operation of the association. They also cover such things as board membership qualifications, meetings, and voting. The bylaws are generally considered to be rather straightforward, but once in a while you come across a set with sections that are vague and confusing. Such was the case with a small building on the Upper West Side that had converted to a condominium in the late 1980's.
Although the condo had kept the same managing agent for decades, the board had recently hired a new manager. He called our office with what should have been a relatively straightforward question, “Does this condominium have cumulative voting?”
For those of you who have not heard of cumulative voting, it’s a corporate concept that allows shareholders in the minority to have a greater chance for representation on the board. In cumulative voting, the shareholder is entitled to a number of votes that equals his or her number of shares multiplied by the number of seats to be elected. The shareholder can then distribute those votes in any manner he chooses. For example, if he has 100 shares and there are seven open seats, he has 700 votes to apply. He can give all his votes to one candidate, or he can divide them among three candidates or all seven candidates. While more common in cooperatives, we do sometimes see this method used in condominiums.
If you don’t have cumulative voting, you have straight voting. With straight voting, if you have 100 shares, you have 100 votes per candidate. You can vote for one or more candidates, but you cannot combine those votes. For each candidate you vote for, that person gets 100 votes.
Some argue that there’s a blessing and a curse to cumulative voting. Yes, the minority can get a seat at the table, but the majority can also use it and stack the board with its own candidates. It can also make your election a little more complicated.
Back to our original question. The manager asked us, “Does this condominium have cumulative voting?”
In order for a condominium to have cumulative voting, it needs to be stated in the bylaws. Having turned to the relevant section of this condominium’s bylaws, we immediately discovered two irreconcilable provisions, probably as a result of a drafting error. The first sentence clearly lays out cumulative voting, while the second sentence flatly prohibits it.
What do we do? The managing agent has to send out the meeting notices, but before he can do that he has to know the method used for voting. Given that the second sentence had introductory language that canceled out the first, the sensible interpretation was to follow the second sentence. If cumulative voting is prohibited, the only alternative is straight voting.
The best resolution to drafting errors is to amend your governing documents. While it’s relatively easy to amend bylaws in a cooperative – because most can be done with just a board vote – condominium bylaws usually require the affirmative vote of a super-majority of unit-owners.
This may involve a significant amount of time, money, and agita. However, passing those necessary amendments will save the association in the long run. Once you remove or clarify the drafting error, you ensure that the confusing language will no longer lead to lingering questions or possible legal battles.
Lisa A. Smith is a partner in the law firm of Smith, Gambrell, & Russell.
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