The Importance of Being Transparent It's Almost Always Better to Know

The Importance of Being Transparent

 A key to success and functionality in any relationship is clear, consistent  communication. In a residential community, part of achieving functionality is  managing the information in the governing documents and records which detail  the community’s finances, legal proceedings and correspondence between unit owners, the board,  the management company and others.  

 Who gets to know what, and when they can know it can easily become a bone of  contention pitting residents against each other—but it certainly doesn't have to. The differences between information that can  be shared with members of the community and data that should be kept  confidential are clearly marked by the law. This doesn’t mean all members of the community, or even every member of the board,  understands what is legal or illegal to share. Unfortunately, misunderstandings  in this area can lead not only lawsuits, which create legal fees that are paid  by all members of the community, but mistrust and bad feeling among neighbors  and their boards—and that in turn can rot an association from the inside out.  

 What’s Hidden, What's Open?

 Experts say that keeping residents in the loop, while still maintaining  appropriate levels of confidentiality, is the smartest and most economical  course. Openness helps to prevent misunderstandings. That being said, just  because something may be community business, doesn’t mean it’s your business. While it is the bailiwick of board members to know what records  they can and cannot reveal, all unit owners should know what official records  they legally have a right to see.  

 “For the most part, the amount of information that shareholder in a co-op is  entitled to is very narrow,” says Adam Finkelstein, a partner with the New York City law firm of Kagan Lubic  Lepper Finkelstein & Gold, LLP. They're entitled to the annual meeting minutes, the shareholder list  and the annual financial statements.”  

 Per Section 624(a) of the New York Business Corporation Law (BCL), corporations  must keep records of meeting minutes. However, Section 624(b) states that while  shareholders are entitled to “minutes of the proceedings of its shareholders,” that only applies to review of shareholder's meetings, not board meetings.  Shareholders are also entitled to access to the roster of fellow shareholders.  The BCL also states that shareholders are to be sent a notice about the annual  shareholder's meeting at least 10 days prior to the scheduled meeting time.  

 On the other hand, official records of condo associations include a copy of the  plans, permits and warranties provided by the developer, a photocopy of the  recorded Declaration of Condominium and recorded bylaws and amendments to both,  a certified copy of the articles of incorporation, a photocopy of the  cooperative documents and a copy of the current rules of the association. Other  official records include minutes, a current roster of all unit owners and their  mailing addresses, unit identifications, voting certifications and, if known,  telephone numbers, current insurance policies and current copies of any  management agreements, leases or other contracts.  

 According section 339-W of the New York Condominium Act, “The manager or 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 the vouchers authorizing the payments shall be available for  examination by the unit owners at convenient hours of weekdays. A written  report summarizing such receipts and expenditures shall be rendered by the  board of managers to all unit owners at least once annually.”  

 Unlike states such as Illinois, Florida and Connecticut, the Condo Act doesn't  set time limits for how long an association has to provide owners with copies  of their entitled documents explicitly. It states that “copies of the declaration, bylaws, floor plans, and any rules and regulations  shall be available for inspection in the office of the board of managers.” Per the act, managers must provide owners with a “written report summarizing receipts and expenditures.”  

 Records exempt from scrutiny include those involving attorney-client privilege,  unit owner medical and screening records, personnel records, security  information or records pertaining to the operating system or software system of  the association’s computer, says attorney Kenneth S. Direktor, Community Association Practice  Group leader for Becker & Poliakoff, a law firm with offices in Florida, New York City, New Jersey,  Washington, D.C, and Prague.  

 Many owners are not familiar with the process of acquiring records of the  community, even though they are entitled access to some of the records. The  proper way to do so is to write the board to ask for access to general  categories of records and provide a proper reason for the request.  

 Finkelstein said he is inundated with complaints from owners about a perceived  lack of transparency between the board and the community. A common complaint he  hears is that decisions are made without owners being made aware of them in  advance, or owners not being provided with enough information if they are  provided notification.  

 “When it comes to these hot topics, which are hallways, lobbies, a major project  here or there, people who are being asked to pay for it, they don't have any  say in it,” Finkelstein says. “So I get both sides of it. I don't know that is ever resolved, given how these  organizations are structured.”  

 Ultimately, Finkelstein says, often the way in which co-ops are structured  prevent all residents from being able to have a say in decisions that are being  made. And due to the lack of statutes requiring board meetings to be open or  minutes to be shared with owners, New York-based shareholders are not entitled  to the amount of information, and transparency, that residents of other states  experience.  

 “I don't think you're ever going to make everyone happy about communication and  transparency—the inherent nature of these organizations doesn't lend itself to that,” he says. “In these organizations that we're talking about, people are elected to serve as  representatives for large numbers of people,” Finkelstein says. “If you're a shareholder in a 200-unit building and there's a board of seven  people making your decisions, there are 193 people that do not have any say in  the decision. And this is people's home, this is something very personal to  them, and people feel that on certain points, they have a right to know.”  

 A lack of state regulations regarding transparency should not stop communities  from striving to promote openness between the board and its owners. Board  members must be mindful that they are not keepers of golden secrets, but  rather, administrators of a community made up of many individuals. That’s why there’s little need for secrecy.  

 “In communities, where there is turmoil, and they are trying to recall the board,  a lot of that is tied to the belief that the board is hiding something,” says Donna DiMaggio Berger, a partner in the national community association law  firm of Katzman, Garfinkel & Berger, which has offices in Florida. “There is no such thing as connecting too much with your association members.”  

 Keeping Owners Involved

 New technologies enable boards and management companies to publicize community  information quickly, easily and cheaply via the Internet. Failing to do so, in  this age of purported “full disclosure,” almost invites suspicion. That’s why it’s best for the managing members of the community to get into the practice of  disclosing as much official information as possible, as quickly as possible.  One way to do this is through regular email blasts to members, or through a  periodic e-newsletter that provides information on board and management  proceedings.  

 “Transparency has less to do with actual distribution of making available books  and records and is more in just keeping an open information flow—whether it be a newsletter, an informational meeting every six months, sometimes  an informal email and Q&A's,” says Stewart Wurtzel, a partner with the Manhattan-based law firm of Tane  Waterman & Wurtzel, P.C. “There are also forms of transparency which don't necessarily get involved with  having to distribute copies of contracts or minutes or discussions or  applications because the board does deal with a lot of confidential information  and it needs to balance the requirement to maintain confidentiality versus the  desire for transparency.”  

 While some experts suggest publishing all meeting minutes and sharing them with  residents—others warn it can be a double-edged sword.  

 “A lot of times, if board members know that all of the minutes and disagreements—depending on the level of detail that minutes are kept—will be published, sometimes boards feel it may chill actual re-discussion  because people are afraid to speak openly and freely because it may be  published,” notes Wurtzel, "I'm not a big proponent of distributing the actual minutes  after each of the meetings.”  

 Wurtzel and Finkelstein also advise against holding open board meetings and  publishing extensive minutes of them, as it can hamper the frankness of any  future discourse.  

 “When owners start talking about, 'Well, we want to have every board meeting open  for unit owners to observe, that's when I start to say, 'It doesn't really work  that way,” Finkelstein warns. “Sometimes boards have to make very difficult decisions, decisions that directly  impact their neighbors. A board has to make budget decisions and they know  their neighbors may be financially-strapped—it's very difficult talking freely with your fellow board members if you have  people standing behind you, weighing in on every word you say,” he adds.  

 So what is the best way for co-ops and condos to be transparent without imposing  on their productivity and efficiency?  

 “The thing I recommend most are committees,” Finkelstein says. “Boards do best when they are inclusive of non-board members. I find a lot of  these things can be resolved—this us-versus-them mentality—if boards create committees and bring in non-board members to serve on the  committees. That way they are a sounding board for the general community—that's an excellent way you negate some of the claims of a lack of transparency.”   

 Jonathan Barnes is a freelance writer and a frequent contributor to The  Cooperator. Editorial Assistant Enjolie Esteve contributed to this article.  

 

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