Q&A: Accessing a Building's Financial Records

Accessing a Building's Financial Records

Q “I live in a co-op on Long Island and I ran for a board position this year. The current board and resident manager spread some vicious rumors about me to keep me off the board. I’m very concerned about the finances of the building. What can I do to keep the finances in check without being on the board. What type of financial information are they required to provide me upon request?”

—Worried in Wyandanch

A “'What type of financial information [is the co-op board] required to provide me upon request?' You are entitled to a lot of financial information,” according to partner Michelle Maratto Itkowitz and associate attorney Isaac Tilton of the New York-based law firm Itkowitz PLLC.

“The New York Business Corporation Law, which governs the actions of cooperative housing corporations, §624(e) states:

Upon the written request of any shareholder, the corporation shall give or mail to such shareholder 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. The corporation shall be allowed a reasonable time to prepare such annual balance sheet and profit and loss statement.

“Moreover, most articles of incorporation require an annual financial statement to be delivered to all shareholders. You should read your corporation’s articles of incorporation carefully, especially if you have designs on a board seat in the future.

“If you really want to see more than just a profit and loss statement, for example, the specific books and records of account, you have a common law right to inspect these records. Sivin v. Schwartz, 22 AD2nd 822 (2nd Dept. 1964). Although to enforce this right, you might need to obtain a court order.

“Now, to your first question: 'What can I do to keep the finances in check without being on the board?'" That is more complicated.

“If you really do not like what you see in the financial records, you may desire to sue the board for breach of fiduciary duty, which right you have pursuant to New York Business Corporation Law § 626. This, however, is not a simple matter to be undertaken lightly, and you would definitely need counsel.

“There are only a few reported examples of shareholder derivative suits against co-ops. In Macnish-Lenox, LLC v. Simpson, 17 Misc. 3d 1118(A) (Sup. Ct., Kings Cty. 2007) the action dealt with breach of fiduciary duty, negligence and waste in connection with a fire repair contract that was allegedly subject to bid-rigging.

“A shareholder derivative suit is an expensive and time-consuming avenue. Therefore, we suggest you first ask for the financial information and insist that the corporation be transparent, since these actions, in and of themselves, may help to motivate the board to steer clear of foolhardy financial decisions.

“Finally, you claim that vicious rumors kept you off the board. So often with co-ops and condos—the best advice we can give is not legal advice, but human advice. Do not settle for being derailed by vicious rumors. Stay active in the affairs of your building and community. Make friends with your neighbors—try to understand what their concerns are and try to enlist them in your own causes. Be a good neighbor and a leader. Maybe then, rumors will not be enough to prevent you from getting a seat on the board.”

Neighbor's Ever-Expanding Room

“A condo owner on my building, added an extra room to her condo in our common basement, now the basement is getting smaller and her condo is getting bigger. Is it fraud or theft to the member association? What can we do? She has been adding space to her condo for a long time. Where do we go for legal help?”

—Frustrated Shareholder

“The condominium owner taking the building's basement space for her own without the consent of the other unit owners is both unjust and unlawful,” says attorney Christian P. Daglieri of the New York-based law firm of Schechter & Brucker, P.C. “The owner must understand that she owns only a partial interest in the space in question and she has no right to prevent the other owners from its usage and enjoyment or to unilaterally enlarge her unit for her benefit at their expense.

“In a condominium, owners both own their unit in fee simple and also share ownership in the common areas of the building (i.e. lobby, basement, halls, roof) with their fellow unit owners. The owners each pay a percentage of the fees associated with the general upkeep, repairs and maintenance of these common areas. It should also be noted that a unit owner's monthly common charges are generally based upon the size of their unit. Here, this owner has effectively increased her own personal space and decreased the common space for the remaining owners while her common charges have remained the same.

“Although the unit owner may believe she is the owner of this additional space, her conduct is akin to a trespass. The condominium board could elect to commence litigation against her and compel her to restore the unit and the basement to the condition it was in prior to her wrongful taking.

“If, however, the building determines it does not want the space back (for example, the space may not be necessary for essential functions of the building or is excess space not being utilized by other owners), then the board may elect to enter into an agreement with the owner. The parties may work out an amicable agreement granting the owner a revocable license to the space she has already "taken.” The licensed space would continue to be owned by all of the unit owners, but this individual owner could have exclusive right to utilize the space in question. The condominium would collect an annual or monthly licensing fee for the owner's exclusive usage of the space and the license agreement would include maintenance and repair obligations for the space for the duration of the license period, any rights the owner has to alter the space and the parties termination rights, among other items that may be agreed upon. This could be a way for the building to make money and have an additional stream of income.”

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