Q&A: Dual Role as Director & Broker

 

Q I am the president of a co-op board in Gramercy Park. One of our directors has recently become a licensed salesperson. When announcing this to the board, he indicated that he would recuse himself  going forward from interviewing any potential buyers.  

 At the time, this seemed adequate to ward off the semblance of any conflict of  interest. Recently, however, the issue has become a bit more complicated.  

 The director has done a mailing to all shareholders announcing his association  with a particular brokerage firm. This has raised more than a few eyebrows in the building. For starters, the director is also the treasurer. Consequently, he is in a position to influence the budget and ultimately  maintenance. Further, he is an aggressive proponent of refinancing our mortgage.  

 I personally am in a difficult position, as the director in question is a close  personal friend. However, I have an obligation to the shareholders to lead a board without even  the slightest hint of impropriety. Can you offer some advice?  

                         —Concerned Board President

A “This board is facing a very common, albeit frustrating situation,” says Steven Troup of the law firm of Tarter Krinsky & Drogin LLP in Manhattan. “It is not at all unusual for real estate professionals, including residential  real estate brokers, attorneys and mortgage brokers, to volunteer to serve on  their respective co-op or condo boards of directors. Indeed, many very  effective board members are, for obvious reasons, real estate people and the  shareholders are often fortunate to have them. It would be unlawfully  discriminatory to disqualify brokers from serving on boards, nor would it be  particularly wise to do so, as their contributions may be uniquely beneficial.  

 “This director does have a potential conflict, if not an actual conflict of  interest, and he and the board president recognize this. The director has partially fulfilled his legal and fiduciary responsibilities to  the co-op by (1) disclosing the conflict and (1) agreeing not to interview  applicants. However, he must also (a) recuse himself from sitting on the  admissions committee in any capacity and (b) recuse himself from all votes and  discussions regarding any transfer applications. He needs to completely remove  himself from any role whatsoever in the transfer process; no e-mail traffic to  the director or back door discussions should be tolerated by other board  members. The fact that this director is also the treasurer does not alter or increase his  fiduciary obligations. But it has understandably caused some concern.  

 “All board members, and especially the officers, are obligated by law to set  aside their self-interests in discharging their duties honestly, fairly and  with only the best interests of the co-op and shareholders at heart. They must refrain from all unlawful discrimination; in addition to the usual  (race, gender, sexual preference, etc.), they must also refrain from voting or  acting in ways which promote their self-interest (in this case, receipt of a  commission) at the expense of another shareholders’ rights (here the selling shareholder’s right and desire to sell his or her apartment to the qualified buyer of his or  her choice).  

 “I would recommend that (1) the board president have a frank discussion with the  director and (2) the board send a memo to shareholders advising them that this  director’s private role as a real estate broker will not impact them in any way: They are  not obligated to use him for their sales and the board will act neither  favorably nor disfavorably on any application for transfer because of his  involvement or non-involvement. Of course, if the shareholders are concerned  notwithstanding, they are free to vote this director out at the next election.”  

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2 Comments

  • When I was siging the contrat in my lawyer's office buying a co op in brooklyn, the president of the board of that co op who is also a real estate broker bypass the seller's broker and direct call the seller's attorney to stop the process because he wanted to buy the unit at a llttle higher price. I offered a even higher price but the owner and his broker were afraid of board president's power on board approval process, decided to sale the appartment to him. Do I have a case here?
  • are there any coop's that do not permit a residetial broker who is a board member to handle any sales in the coop? Any advice on whether to permit such activity?