Q&A: Without Board Consent

Q&A: Without Board Consent

Q Three shareholders organized the development of 861 square feet of unused courtyard space behind their building, after having surveyed the building for interest (57 percent of shareholders responded—of which 70 percent were in favor).

After getting counsel from an urban greening expert, the three shareholders designed and budgeted for the garden, developed house rules based on the survey findings, got endorsements from ten top New York City real estate brokers who agreed that a garden would enhance the value of the building and salability of units and generated positive interest from 24 shareholders (contributing/ maintaining), raising one-third of the budget ($2,000 out of $6,000).

When the three shareholders presented a proposal to the board, the board

dismissed any involvement saying the shareholders hadn’t obtained majority interest and was not interested in giving fiscal support. They said (verbally) if the three shareholders wanted to undertake the project and pay for it, fine, accepting the argument that, as shareholders, we were entitled to “quiet enjoyment” of the space as they are to their apartments—under page 7 of the building’s proprietary lease.

In the meantime, the board surveyed the building, made a presentation, and claims that a majority of the building wants to institute a gym for $120,000. In doing so they are seeking to debit all of us one month’s maintenance.

This raises three questions: 1. In a political election, doesn’t a plurality rule? Can the board dismiss our shareholder support for the garden, claiming it’s not a majority? Do we have to get their permission in writing for consent to put some plants and furniture in the back space? 2. If we just go ahead, can the board arbitrarily disallow our garden efforts once we’ve made our investment and installation? 3. Do we have the right to see the “majority” survey votes for the gym to assure if it is indeed a plurality, as was ours?

—Disaffected Gardeners

A According to Mary L. Kosmark, Esq., of the Manhattan-based law firm of Rosen and Livingston, “the only political election in this set of facts is the election of the board. Unless the proprietary lease or bylaws dictate that the shareholders have the final word on any particular matter, virtually all the decision-making authority rests in the board. The ‘survey’ referred to here would constitute an informal poll to inform the board of shareholder sentiment.

“Under the Business Judgment Rule, which has consistently been upheld by the courts, the board has the authority to ignore the shareholders’ request for a garden, if they judge it to be in the best interest of the corporation. Shareholders will have to follow whichever rules the board promulgates regarding use of the courtyard, including the installation of plantings and furnishings.

“Secondly, I’m not sure what the writers mean by disallow our garden efforts but the board would be within its rights to require the removal of unauthorized property in the courtyard. Moreover, unless there were some sale or lease of all or a portion of the space to specific shareholders, the area would remain a common amenity, available for the use of all shareholders. Lastly, as a shareholder, no one has the right to view materials used by the board in its deliberations, including any votes solicited from shareholders on any issue.”

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