Q&A: Taking Action Against a Negligent Board

Q&A: Taking Action Against a Negligent Board
Q Our building is being run by family-based board members. The building is falling apart and there are apartments that have been sitting empty for more than 10 years. We have never seen a financial report. What can we do to change this? What are our rights, how can we find out what kind of debt our building is in? What legal recourse do we have?

---Concerned Shareholders

A “You and your fellow concerned shareholders should first try to gather as much information as possible to determine the status of your building,” says Thomas D. Kearns, an attorney for the New York-based law firm of Olshan Grundman Fromme Rosenzweig & Wolosky LLP.

“For example, public records may be inspected to determine the name of the entity which owns your building, the identity of the holder of any mortgage and the original principal amount of the mortgage, whether there are significant violations listed against the building and, if your building is in New York City, the name of the managing agent. Have monthly bills been sent to owners? If so, the managing agent is usually named on that bill. If your building is too small for a managing agent, who collects the monthly payments? You should also gather copies of all of the documents governing your building such as the bylaws and proprietary lease. If your building is a condominium, the governing documents are publicly available.

“The questioner does not identify the type of building but New York law generally permits co-owners to conduct a books and records inspection of the operation of the building. While it is possible for a non-lawyer to pursue this, it sounds like you may need to go to court to force the matter in which case you should bring in counsel early to help with the required notices. Your lawyer may also be able to help gather pieces of information and, if your lawyer is experienced in these matters, he or she may have a relationship with the building’s managing agent.

“Explain to your lawyer that you would like to start to enforce your rights under the governing documents and pursue a books and records inspection. The right to inspect the building’s books and records emanates from both common law and specific statutory provisions. Typically, there are also rights to force an owners’ meeting based on a certain percentage of the owners joining together. To help with that right, you should usually start early in the process to reach out to other owners to muster the required percentages.”

“If the building is truly being run poorly, New York has various mechanisms for a court to order compliance with law and the governing documents including in drastic circumstances the appointment of a receiver to operate the building.”

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