Paula Chin in Legal/Financial on January 9, 2018
If it seems the “to-do” lists for co-op boards and property managers keep on growing, that’s because they do – and now there’s another item to add. On January 1, 2018, a new state law went into effect requiring boards to prepare an annual report of all contracts they awarded in which a director has a financial interest.
The report has to be signed by all directors, and it must include information on the recipient; the amount and the purpose of the contract; a record of the board meetings in which the contract was voted upon, including attendance and how each member voted; the date of the vote; and the effective date of the contract. Finally, boards are required to distribute the report to shareholders and unit-owners. The new statute, which amends the state’s Business Corporation Law and the Not-for-Profit Corporation Law, was designed to cover both co-ops and condos, but since it does not amend the Real Property Law, which governs condos, they aren’t affected – at least for now.
The law has the laudable intention of eliminating conflicts of interest from the dealings of co-op and condo boards and addressing the oft-heard complaints about lacks of transparency.
“It’s hard to argue against that,” says attorney James Glatthaar, a partner at Bleakley Platt & Schmidt. “But I think it’s a remedy for something that’s not really a significant problem. With well-run boards, conflicts of interest – or even the perception of conflicts – are already disclosed in the minutes of any meeting. This is going to require a lot of unnecessary and redundant record-keeping. Still, there are always shareholders who suspect their board is hiding something. For them, this law is the Holy Grail.”
Hastily passed last September, the amendment is poorly drafted, says Glatthaar, which could cause headaches for boards and property managers as they scramble to comply and get their papers in order. To shepherd them through the process, Glatthaar has made up his own list, which he has presented to several management companies, including Hudson North and Gramatan, both based in Westchester County.
The first step is compiling an A-to-Z list of current contracts. “It has to include everything, from elevator service to ammonia garbage supplies,” says Glatthaar. “Then circulate it to the board, asking members if they have [a connection to] any of the vendors, and have them sign it, right off the bat.” Then, keep a running tab throughout the year of new contracts. “The law requires disclosure of all contracts voted on, not just those that were approved,” he explains. “Say you have gotten five bids on one of them. Technically, that means if you voted for one vendor, you silently voted on the other four, so do those have to go in your report? I don’t know. For now, I’m advising people to err on the safe side and include them all.”
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