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Statutory Authority: Why It Matters

Apr 02, 2021

Stephen Lasser, Lasser Law Group

Once boards go down the virtual road by holding Zoom meetings and conference calls and sending emails, it's easy to forget about statutory authority. Let's start by focusing on one of the primary things that boards do – and that's voting. If they’re not meeting in person, do they have statutory authority to vote virtually?
The answer is yes and no. For co-ops and homeowners associations the statutes that govern them – the Business Corporation Law, the Not-for-Profit Corporation Law – allow for telephonic votes. By extension, Zoom would be the same thing because it's the same or similar technologies that allow two-way conversations to take place. So virtual board meetings are basically already authorized, even though I don't think the statute specifically mentions that. It's understood that those technologies would be permissible so that co-op and HOA boards could use that technology. But a related issue is that boards need to maintain proper minutes. To actually conduct business it's not enough to just vote on the issue. What I've found is that if you have proper minutes, that's almost like the gold standard for proof that a resolution was properly enacted by a board, so you'd be protected by the Business Judgment Rule. So it's not enough just to have the meetings, it's also important to take good minutes.
         One other point about minutes is that they’re not a place to have a lengthy discussion about a particular topic. It's just real simple. You're required to maintain minutes whether you're a co-op, an HOA or a condo, which will help you out if a decision by the board is challenged. Minutes should succinctly state whatever matter was passed by the board, that there was a quorum present, and that's sufficient. Also, if it's something controversial like a request for an emotional support animal, you're allowed to rely on professional advisors. So if there's some topic that you want to reflect was discussed at a meeting, and you don't want to necessarily talk about all the decision-making process behind it, you should just say that the board discussed the request for an emotional support animal and that it was referred to legal counsel. That should be sufficient to shield the board from personal liability for their decision, and that the issue wasn't ignored.
Lots of boards are not so tech comfortable but are comfortable with emails, and business sometimes gets conducted via email even though everybody says one shouldn't do that. Some boards may say, "OK, let’s vote to go forward with this project, everybody sign in." Can you do that, and should you?
Well, in this day and age I find a lot of boards conducting business via email and, in particular, I think a lot of condo boards do that because statutorily they're not specifically authorized to hold virtual board meetings via telephone. In most condominiums, sometimes the fallback position is they can rely on their governing documents, their bylaws, that might authorize them to conduct meetings via telephone conference. Unless their bylaws were amended recently, though, they probably don't have that language in there.
So a condo board does not have the statutory authority to conduct virtual meetings?
That's right. Unfortunately, condominiums are sort of the Wild West when it comes to corporate governance. Unlike HOAs and co-ops, they don't have specific authorization to conduct meetings via telephone conference, but a lot of them do; sometimes they rely on emails. In fact, as I mentioned, since the statutes governing condos are very sparse with respect to corporate governance, a lot of times courts will read the Business Corporation Law applicable to co-ops and apply it to a condominium. If the language of the condominium's bylaws does not track the Business Corporation Law, which permits telephonic board meetings and other things like that, if they don't have that language in there, sometimes the courts will read that language into the condo’s bylaws and say, "Look, they're just like a co-op. They should be allowed to do this even though the statute doesn't specifically authorize it."
How have the courts ruled on virtual voting?
I haven't seen any cases that deal with virtual voting because that's like a new hot topic, but I do think that a court would probably uphold a decision by a condo board that voted telephonically or via Zoom. I think a better practice for condo boards if they do go down that road is that in a subsequent in-person meeting, whether that’s six months or a year from now, they should ratify all the decisions that they made for the prior year if it was conducted via Zoom. If it's something that's potentially controversial, like a new house rule or an assessment, I think an even better measure would be that the board meet in the building lobby or courtyard and just have a five-minute meeting. You can have all the discussions beforehand via Zoom, telephone conference or another technology, but then just ratify the decision in person so you don't have to worry about someone challenging the methodology for enacting that decision.
What about condos where the board does not reside in the building? It's not going to be practical to meet in person regardless of the pandemic, so how do you ratify it? Do you send it by mail?
Sometimes the governing documents from a condominium will state that they can ratify a measure by written consent. Actually the statute for HOAs and co-ops says that boards can just approve a matter without holding a meeting via a written-consent form which is filed with the minutes of the association or corporation. That sort of gets back to the point of your question about emails. I think emails are not a great place to have a discussion. Actually, during the pandemic a law was passed in June which covers cooperatives saying that they can submit a written consent by email. Previously you had to actually have a formal resolution signed by everyone to approve a matter not voted upon at a meeting, but you could conduct business outside of a meeting via a written-consent form. Now, until December 2021, I believe, you can do that via email. So basically the board can hold a discussion, or they can send out an email string saying, "Vote on this," and it can be conducted via email. The problem there is that it has to be unanimous consent, and it's hard to obtain unanimous consent.
Are there other problems with email?
Yes. They are discoverable in litigation. For example, if someone were to say, “You were having a discussion about a request for an emotional support animal,” and someone else might say, "Well, I went to a holiday party last year and I know this person and they're definitely not disabled. I was hanging out with them, blah, blah, blah." In an email string someone might just write that this person is not disabled and you don't get the context of the conversation, and it's also a permanent record that could be used in a lawsuit. So, I think you have to be really careful about what you put in an email. I think anything that you might not want to be seen in a public court you should refrain from putting in an email.
         If you want to resort to email to conduct a vote, you should have a meeting virtually first and then submit written-consent forms via email, and not have your discussion online. You should be very careful about what you put in writing. As far as I'm concerned, emails can be a recipe for disaster.

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