Carol Ott: Welcome to Legal Talk, a conversation about governance issues that New York's co-op and condo boards are tackling today. I'm Carol Ott with Habitat, the New York City magazine for co-op and condo board directors. My guest today is Geoffrey Mazel, a partner at the law firm Hankin & Mazel.
Governing a co-op is not for the faint of heart. There are so many missteps that one can take and one of the biggest seems like it should be one of the simplest, and that's what to communicate, how to do it, when to do it, and to whom. Geoff, let's start off with some communication basics. What information can a board share and to whom?
Geoff Mazel: This is a, it's an issue that seems relatively simple and once you get into the weeds it just keeps growing and growing. Basically, information that is divulged by the board of directors are those items and matters that are of a general nature, and the ones that are more specific nature. If it's something that's already happened, that can be divulged and if it's something board is still deliberating on, that's something they can't divulge yet because they have to make a decision. It's really an art as to what to communicate, when to communicate it and how to communicate it. And I, every board I represent has their own personality in this field and in this realm.
And it's a question I get asked almost every day.
Carol Ott: Let's turn to the person who wants to purchase an apartment in a co-op, for instance. And they have, they've hired an attorney perhaps, and they want to see how the corporation is running. Is it solid? Is it not solid? So they want information. What kind of information can a prospective purchaser ask and what kind can they get?
Geoff Mazel: Okay, this is a, again, a question. I see every day. No brainer you can get it, are financials. According to the business corporation law, financial statements are must be issued by boards and divulged to shareholders on an annual basis. So the financials are right for distribution. An offering plan is a public document.
It's in the public domain that can be distributed. The trick comes when it comes to board minutes. Most people don't really quite understand that according to the business corporation law and case law co-ops boards don't have to divulge minutes. However it has become customary and ordinary for prospective buyer's attorneys as part of the due d due diligence to review minutes and it's expected.
So if minutes are not divulged. It becomes, in fact, a mark on the building and the lawyer might say, let's go to the building next door where I can review the minutes. What I tell my boards is it's, transparency as much as possible is the best practice and divulge the minutes. However, you must redact executive minutes and issues of privacy, shareholder issues, employment issues, executory contracts and things like that. You can't divulge those things because there's privacy issues.
Carol Ott: When you say redact it, so I'm in a board meeting. And I have, the secretary is taking minutes and we're talking about, Joe Blow and Jane and an arrear situation.
And so we talk a little bit about that. We have an upcoming contract that we are debating whether we should accept it or not accept it. We're talking about should we have an assessment to cover our fuel charges. I. The secretary is writing all this down. At what point is that redacted?
Geoff Mazel: That, that, that's the art. Okay. Minutes. My opinion, what needs to be in minutes is time and date of meeting. Who is in attendance? If there's a quorum and any motions pass, the the content of the motion and whether it passed or not. However, in reality boards, some boards put in more, some boards put in less. When it comes to private information,
and this is, this is a legal threshold here. It's not a question of, do we take it out or not? It's, you should not be divulging certain things. We always call for executive minutes, so that could either be done in a separate part of the meeting or kept in a separate book of minutes called Executive Minutes, and that's where you do.
Carol Ott: Those executive minutes are not shared, even though--
Geoff Mazel: Those would not be shared in a due diligence submission for the sale of apartment.
Carol Ott: Might it be shared if somebody, okay. Let's move on to the next thing. We have a group of shareholders. They think the board isn't doing a good job. They think the contracts the board are signing are too expensive.
They don't believe the board when it's, they say, we need to raise the maintenance, or we need to do an assessment, and they request to see information. . They request to see the board minutes. They request to see the exec, let's say that their executive minutes, they request to see contracts, they request email addresses of all the shareholders in the building.
What can they legitimately expect to receive after they've made this request?
Geoff Mazel: So again, if we go back to the BCL the requirements are relatively limited as to what the board is required by statute to do . It says List of shareholders. What does that mean? Does that mean email addresses?
It says annual meeting financials, but then there is a part of the BCL where shareholders aren't, are entitled to review books and records of the corporation upon request if it furthers a, a, there has to be a reason or a purpose. In my mind when there's a request, if it's in good faith,
and a board has absolutely nothing to hide, I don't see a problem with granting a, again, it depends on the request, but giving that request and having the shareholders see that there's nothing wrong here, and this is what the board's doing. If the, if it looks litigious if it looks like it's in bad faith, shareholders do have a right to file a court petition for production of certain books and records that they've requested. So it can go or it can be somewhere in the middle when it comes to confidential information, a board unless they're under subpoena, almost will never submit those documents to a third party.
Carol Ott: And is it different in a condominium? Are the requirements different?
Geoff Mazel: Yes. The condominium under the Condominium Act was recently amended to say that, invo that they use little different language. So it's hard to pigeonhole everything into one category, but it does say books of receipts and invoices do have to be submitted to shareholder, to, excuse me, unit owners who request it.
It appears based on that statute that condominium owners have a greater right to more of the day-to-day bills that are being paid by the condominium board than co-op shareholders.
Carol Ott: So I, I understand that communication is an art, and I, one of my final questions is it would seem to me as a board, it might be a better practice to over communicate so that if there are disgruntled shareholders who don't trust your actions, don't think you're doing a good job, perhaps strategically by communicating a lot, you will quell disgruntled shareholders urge to request information that you may have to say no to.
Geoff Mazel: And this is a developing area because, look how we're speaking today. A couple years ago we would've been in your office doing this. Communi, the methods of communication have gotten much better and much easier. I am, I'm of the opinion that best practices dictates the more disclosure and transparency the better without compromising anything the board is doing.
I think people have a right to know what the board is doing, a, as a matter of good practice, irrespective of the technical requirements under the statute. It does go too far though. I have, there is now technology where people can go on building Link or Facebook or whatever and basically put whatever they want on there and attack boards.
And I've seen it numerous times and it becomes problematic. And then does the board respond to every one? Why are they not responding? So it's, it could be exhausting, but yes the board should have a methodology where they regularly submit information with regard to the Day-to-Day operations and long-term operations of the building.
I also think besides annual meetings, semi-regular meetings maybe a semi-annual meeting, and I know we've discussed that in the past, are always a good idea, especially now with again virtual meetings. It, you don't have to leave your house. And people, sometimes you sit down for an hour, people get the information and all those problems that you might've had brewing over the year will go away.
So it is a best practice for a board.
Carol Ott: And bottom line and as a takeaway, what would you advise boards as they think about setting up a communication guidelines?
Geoff Mazel: I would say be unified and be transparent. Okay. You can't have one board member going out there and, being the savior of all the shareholders and acting rogue that just, that hurts the whole, not only hurts the board's operations, it hurts the whole building again.
Pick a method of communication, whether it be an email blast or BuildingLink and use that on a regular basis, maybe to-- I have one board they do building meeting summaries after their meetings. And again, it's apu, it's approved by the board, and they disclose those things that are, it's useful information, but it's not everything that happened in the meeting because you can't do that in real time because the board has to be able to operate in function and those are the boards that have the best results.
Carol Ott: Thank you very much, Geoff Mazel. It's very good advice.
Geoff Mazel: Thank you. Thank you, Carol.