Guarding Against Conflicts of Interest on Co-op and Condo Boards
Sept. 9, 2019 — There are simple defenses – and there is a muscular new state law.
How can residents of New York City cooperatives and condominiums know if a board member is guilty of a conflict of interest?
“There’s a conflict of interest when – and only when – a board member has a pecuniary interest in the issue on which the board has to decide,” Ian Brandt, a partner at the law firm Wagner Berkow & Brandt, tells the website Brick Underground.
A pecuniary interest might involve a board member who is a broker in an apartment sale in the building. That would represent a conflict because the board member has a financial stake in a deal that will hinge on the board’s vote on the sale. Brandt says that, in such a situation, the board member should recuse him or herself from voting on the purchase application.
A conflict might also arise if a board member is voting on an issue directly related to his or her apartment, such as an alteration package or a sublease. Again, the board member should recuse him or herself from such a vote.
However, Brandt points out, disqualification or recusal is just for voting purposes. “All board members have the unqualified right of access to all corporate materials and communications,” he says.
Co-op shareholders and condo unit-owners have an additional protection. On January 1, 2018, a state conflict-of-interest law went into effect requiring co-op and condo boards to prepare an annual report of all contracts they awarded in which a director has a financial interest. The reports must list all contracts or transactions that were voted on by the board with an entity in which a director has a financial interest. The reports must be signed by all directors and include information on the amount and purpose of the contract, the recipient, a record of the meetings of the directors in which the contract was voted on – including attendance and how each director voted – plus the date of the vote and the effective date of the contract. Even if there were no contracts involving interested directors, that fact must be disclosed. The report must then be distributed to all shareholders or unit-owners.