When a board refuses to communicate, hold elections, or provide access to records, it’s a red flag.
Q: I live in a co-op building in central Queens where the board of directors is secretive and, we suspect, corrupt. Shareholders are not invited to monthly meetings, only to the annual meeting, when elections are held. We are not asked if we want to run for the board. The board has refused to share minutes of its monthly meetings, telling us to travel to the managing agent’s office in Nassau County to read them! We are trying to get five other shareholders to run, but the managing agent won’t tell us the date of the next annual meeting. How can we force the board to have an election? What do we do if it refuses to turn over control to new board members?
A: The board’s behavior does indeed seem suspicious, but it may not be illegal, depending on the rules set out in your co-op’s bylaws. Most co-op boards are not required to open their meetings, with the exception of the annual meeting, to shareholders.
Telling you to travel to Nassau County to read the minutes “is a bit antiquated but permissible,” said William J. Geller, who practices real estate law at Braverman Greenspun.
Still, a board’s refusal to communicate, hold elections, or provide access to records could be an indication that it is not acting in the best interests of shareholders, said Debra J. Guzov, who practices real estate law in Manhattan. Your best course of action is to educate yourself on the building’s rules and organize your neighbors to elect new leadership.
Read the bylaws, proprietary lease and house rules to make sure the board is acting legally and to find notice provisions for the annual meeting. If these documents are silent or incomplete, refer to section 602 of the New York Business Corporation Law, which has requirements for the timing and conduct of meetings.
From there, prepare for the annual meeting. The directors might be elected annually, or there might be staggered elections, meaning a fraction of the board is up every year, Mr. Geller said. If the board fails to hold an annual meeting and election, shareholders with at least 10 percent of the shares have a right to call a special meeting to elect directors.
Determine a slate of candidates and build support for a change in leadership. If new board members are elected and the incumbents do not transfer power, shareholders can hire a lawyer to seek either emergency injunctive relief or an Article 78 proceeding under Civil Practice Law and Rules. Be aware that Article 78 proceedings have a four-month statute of limitations from when a request is denied.
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