Board Transparency Lifting the Veil of Silence

Board Transparency

One of the biggest political buzzwords of the past 10 years or so is “transparency.” Observers demand transparency in meetings of elected bodies in local and state governments, transparency in the proceedings of public agencies, and at times in the doings of private organizations, such as civic groups and churches. The feeling is that if an organization serves the needs of the public in general or a specific group, the public is entitled to a certain level of disclosure about the organization's inner workings and decision-making processes.

Inevitably, many people would like to apply the same concept to meetings of co-ops, condos or HOAs. In these cases, the property being managed represents the biggest single investment of the residents who call it home. A lack of open communication can result in these residents’ distrust of the board—but if too much information is divulged, it could violate the privacy of individual residents, or jeopardize important financial negotiations or legal proceedings.

The Legal Angle

In New York state co-ops, the availability of co-op records is governed by the Business Corporation Law (BCL). According to attorney Eric Goidel, a senior partner of the law firm of Borah, Goldstein, Altschuler, Nahins & Goidel, P.C. In Manhattan,  “In cooperatives, the Business Corporation Law requires that shareholders have access to the minutes of annual meetings of shareholders, shareholder lists for the ability to communicate with fellow shareholders, and access to the books of account of the corporation. Accordingly, an annual financial statement must be furnished to shareholders.”

In condominiums, says Attorney Adam Leitman Bailey, of Manhattan-based law firm Adam Leitman Bailey P.C., “Because most condominiums exist as unincorporated associations not subject to the Business Corporation Law, any rights of owners as to the inspection of books and records arise out of the building’s corporate documents, the common law, and Real Property Law [commonly known as the Condominium Act] Section 339-w, which states that the manager or the board of managers, as the case may be shall keep detailed, accurate records, in chronological order, of the receipts and expenditures arising from the operation of the property. Such records and reports shall be available for examination by the unit owners at convenient hours on weekdays.”

Attorney Timothy Byon, an associate at the law firm of Romer Debbas, LLP in Manhattan elaborates on these requirements. Under Section 624 of the BCL, he points out, “A co-op board must keep correct and complete books and records of account,” must record “minutes of the proceedings of its shareholders, board and executive committee, if any,” and maintain “a record containing the names and addresses of all shareholders, the number and class of shares held by each, and the dates when they respectively became the owners of record thereof.” Shareholders, their agents or attorneys, have the rights, as per the BCL, to examine in person shareholder minutes and the record of shareholders, Byon says. 

As we’ve mentioned, moreover, the BCL requires that, upon shareholder request, the corporation provide such shareholder with “an annual balance sheet and profit and loss statement for the preceding fiscal year, and, if any interim balance sheet or profit and loss statement has been distributed to its shareholders or otherwise made available to the public, the most recent such interim balance sheet or profit and loss statement.” 

Byon also refers to the aforementioned section 339-w of the RPL as to how the situation applies to condos. In addition, he says, Section 339-q provides that “True copies of the floor plans, the declaration, the bylaws and any rules and regulations shall be kept on file in the office of the board of managers and shall be available for inspection at convenient hours of weekdays by persons having an interest.” 

Some Case Law

Getting into case law, Bailey mentions a case involving the BCL and relating specifically to residential co-ops. In the Matter of Schapira v. Grunberg, shareholders sought to inspect the records of a particular election, including both ballots voted for in-person and by proxy. “The trial court held that unit owners of cooperatives have a right not only to inspect the records specified under BCL 624, but they also have the common-law right to inspect other corporate records, merely by virtue of their status as corporate shareholders,” says Bailey.

In a case relating to condos, Pomerance v McGrath, says Bailey, the Appellate Division ruled that the Condominium Act or RPL should be “liberally constructed” as far as access is concerned. The court opined that “giving condominium unit owners the same rights as cooperative shareholder-tenants will encourage condominium ownership.”

New York Behind Other States

All things considered, however, “New York is hardly in the forefront of states in terms of requiring transparency by board members,” says attorney Bruce Cholst, a partner in the law firm of Rosen, Livingston & Cholst LLP in Manhattan, “Connecticut and a number of states do require ‘open’ board meetings. Moreover, with the exception of subpoenas issued in the course of litigation, boards in New York are subject to surprisingly few disclosure requirements regarding their operation.

“Perhaps surprisingly, there is no requirement that copies of board meeting minutes or contracts entered into by the association be provided to owners,” Cholst adds.

And at least in New York State, there are no equivalents of the federal Freedom of Information Act, not when it comes to co-op and condo boards. “Boards, of course,” says attorney Dennis H. Greenstein, a partner at the law firm of Manhattan-based Seyfarth Shaw LLP, “may be required to provide records and documents to administrative agencies having proper jurisdiction.”

A Board President’s Perspective

Of course, within the legal framework we just outlined, boards have some leeway to set their own policies—and make them somewhat more liberal. 

“Under the law,” says Warren Schreiber, president of Bay Terrace Cooperative Section I in Queens, “shareholders are not entitled to the minutes of monthly meetings—just annual meetings. But having said that, a smart board would not want to tell owners, `you can’t have the information.’ We may want to make it available in different forms.” 

For example, many co-ops distribute a newsletter under residents’ doors outlining the motions made and decisions taken at the monthly meetings. Schreiber’s co-op holds an annual 'town meeting' as an adjunct to the annual meeting in which board members can inform the shareholders of issues and take questions from them. 

Still, Schreiber believes “There's a big difference between transparency and communications. If we deal with legal matters, or dealings between one shareholder and the corporation, there are privacy matters.” In the solicitation of bids, he continues, too much transparency could compromise the bidding process.

Don’t Take Them Home

Where are all these records kept? In most cases, experts agree, they’re kept at the management office, whether the building is self-managed or employs a professional management company. These records typically include minutes of proceedings, financial documents, legal or business correspondence, and shareholder/unit owners’ information. 

In the digital age, of course, the web also comes into play. As Goidel says, “Many cooperatives and condominiums have set up website portals which are password-protected for residents where the boards can load up important documents, such as minutes of the annual meeting, minutes or highlights of board meetings, bylaws, proprietary lease and house rules for a cooperative; and declaration, bylaws and rules and regulations for a condominium.”

One place where documents shouldn’t be stored, however, is in individual board members’ units—although, at times, a board member can take a copy of a document home with them if they’re trying to resolve an issue.

The reason for this is that board members hold political positions, and in many developments there are competing slates of candidates for board seats—perhaps with a longtime rivalries. If individual board members are keeping important or confidential documents in their own units, it could give the impression of impropriety, or lead to charges of partisanship. For the sake of neutrality and prudence, better to keep any and all official association documents and paperwork in a central, non-partisan location. 

Who Has the Most Access?

Now, who among the board has unfettered access to the building’s important documents and residents’ personal information? Is it the board president, the treasurer, the managing agent?

Documents pertaining to the co-op as a whole are available to board members as a matter of law. Depending on the development, most are available to shareholders as well, as we’ve mentioned. 

However, Schreiber says that in his co-op, individual shareholder files, which may include the shareholders’ financial records, employment records and records of conflicts with neighbors, are treated as confidential. 

“The property manager has the right to go through them,” says Schreiber, “but even if one of my board members wants to see them, they have to go to the property manager, who runs the request by me.” 

According to Bailey, “Any document that may be too sensitive should be placed with the building’s attorney. I have a bunch of these type of documents concerning crazy things like videotapes of sex in the Pilates room caught on camera, and so forth.” Clearly, that kind of content has no business being anywhere but under lock and key. 

While shareholders or unit owners can have access to documents, Goidel cautions, “Access to records should not be unbridled, and shareholders or unit owners should not be allowed to abuse the privilege or monopolize the time of the managing agent or board members. Reasonable time, place, and manner of restrictions can be established.” For example, a shareholder shouldn’t be allowed to come to the management office without notice with a list of 55 documents he wants to see, while 10 people are waiting in back of him.

Goidel adds that “While shareholders and unit owners can take notes on document content, they should not necessarily be allowed to make photocopies of documents, or even take pictures of documents on their handheld devices.” 

Depending on the circumstance, some buildings or development will print out copies of documents for residents upon request. In general, the board can make these types of rules, provided that the relevant provisions of the BCL or the Condominium Act and the building’s own governing documents are also adhered to.

Abuse of Information

Greenstein cautions that there is a key “carveout,” or exception, regarding a shareholder’s right of inspection of the development’s documents. It states, he says, that “A inspection may be denied if the shareholder refuses to submit an affidavit certifying that such inspection is not desired for a purpose other than the business of the cooperative corporation.”

“Too many times, information in the hands of non-board members is released onto the Internet or with brokers, and that can damage the value of the building,” Bailey elaborates. 

When such abuse of information is identified, says Goidel, boards should consult with their attorneys. And conversely, says Greenstein, if a shareholder has the right to inspect under the Business Corporation Law or bylaws and is wrongfully refused by the building, “That shareholder may apply to the state Supreme Court to determine whether or not an order compelling the disclosure should or should not be granted.”

Clearly the issues of board transparency, board-member access to records and shareholder access to the same records are complicated ones. It’s important to stay within the law, protect the privacy of shareholders, and not compromise the building’s bidding processes or legal proceedings. At the same time, however, the more open a board is, the more it will get the respect of the building’s residents.

“Open and honest communication,” concludes Byon, “is generally the best policy for a board when disclosing building information to the shareholders/unit owners of a co-op/condo. Residents want to be kept abreast and informed of board decisions that have an impact on the community and the building. However, boards should be careful with disclosing information that may single out individual owners or information that may be cause for tension within the community. Boards must balance between a level of transparency that satisfies the owners and the utility and consequences of any information released to owners.”

Raanan Geberer is a freelance writer and a frequent contributor to The Cooperator. 

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  • Love you keep- up the good work , thanks
  • Does a Coop Board have the right to disallow access to the findings of an engineering report they commissioned even when shareholders have requested access to it in public town meetings?
  • Brian Leahy Doyle on Tuesday, June 1, 2021 6:06 PM
    Does the managing agent of a co-op in New York State have a fiduciary responsibility to a shareholder in a co-op to provide a full copy of an engineering report for water damage to plaster walls due to moisture intrusion? Our managing agent contracted an engineer to do a water test in our apartment but refuses to provide us with a copy of the engineer's report. Sounds to me like there was no actual written report or he's got something to hide! Please respond.