Is there a wrong way to pass an amendment to co-op or condo governing documents? Ken Jacobs, partner at Smith, Buss & Jacobs, explains the potential pitfalls to Habitat.
A lot of co-op and condo boards decide they want to change the way they run things. They want to ban smoking, or implement a flip tax, or just clean up the language in governing documents. Is there a right way and wrong way to do it?
It really depends on the kind of amendment. I've had boards come to me and say, “We want to pass an amendment.” I say, “Great, what amendment?” And they answer, “Well, we want to impose a no-smoking amendment and we want to put in a flip tax. And while we're at it we want to impose late charges and a schedule of fines.” And I ask, “Okay, how are you planning on doing this?” And they say, “Well, our annual meeting is coming up, so we thought we'd put it in the notice of meeting,” and I say, “Whoa, wait.”
Why is that?
These amendments are not housekeeping amendments. These are controversial, and doing it this way is a recipe for failure. The reason for that is that you need at least two-thirds of your owners to approve any amendment like a no-smoking amendment or imposing a transfer fee or flip tax, which is a very high bar to clear. If only 50 or 60 percent of owners usually attend your annual meeting, and the board is counting that announcing the proposed amendments will get more people to show, I guarantee that it’s going to be the people who oppose them.
How should boards proceed?
The first step is educating your owners well in advance. For example, if it’s a no-smoking amendment, provide accounts of people who have complained about secondhand smoke and the difficulty that you've had locating its source and stopping it. Provide materials about the dangers of secondhand smoke. You have to educate residents about the problem and what direction you want to go.
Should this be done face-to-face?
You can send things around in writing, but I suggest having a town-hall meeting. That way, people can express their concerns and ask questions, and you can explain the benefits of the proposed amendments and make people more amenable to voting for them.
Once you've educated shareholders or unit-owners, how do you get the amendment through at the annual meeting? Do you just go for it?
Don't present it alone. Start with some housekeeping amendments that will be easy to pass – for example, getting rid of archaic terms like “hereinbefore” in your documents or other minor editing of the bylaws and proprietary lease. People will say, “That’s a great idea” and become more open to consider other changes. Then you introduce the flip tax, smoking ban or whatever.
Are there any other strategies?
Boards should be prepared that it may take more time to get the two-thirds vote they need. That's why I sometimes suggest making the amendments the subject of a special meeting instead of the annual meeting. Under most bylaws, a majority of persons present at the meeting, either in person or by proxy, have the right to adjourn the meeting to another date and reconvene. That gives you the chance to extend the voting period and collect more votes. Sometimes I've adjourned meetings three or four times over a period of several months before we reached the threshold where to get enough votes to get the amendments passed.
So, to recap, never spring anything on owners.
Exactly. If you've started the process two or three months before the annual meeting, then maybe you can put it in your notice of meeting. Package the amendment with some noncontroversial amendments. And be prepared to adjourn the meeting and reconvene it, multiple times if necessary. The bottom line is you’ve got to give yourself time to build that supermajority.