Co-op and condo owners often make assumptions about who can serve on the board of their corporation or association -- and one of those assumptions is that any owner of shares in a co-op, or a unit owner in a condominium is eligible to run for and serve on the board.
That’s not necessarily correct, however. As in most instances, the ultimate authority rests with the governing documents of the individual corporation or association -- and depending on the language in those documents, potential board members may include owners, sponsors, investors, and at times others.
Check the Bylaws
According to Phyllis Weisberg, an attorney with the New York City office of Montgomery, McCracken, Walker & Rhoads, “There is no requirement for co-op or condo residents to serve on the board,” according to the governing law. “One must look at the bylaws.”
Weisberg also points out that for co-ops in New York, which are subject to the Business Corporation Law (BCL), there is also no residency requirement, unless provided for in the community’s bylaws. Section 701 lays out the requirements as follows:
“Subject to any provision in the certificate of incorporation authorized by paragraph (b) of section 620 (agreements as to voting; provision in certificate of incorporation as to control of directors) or by paragraph (b) of section 715 (Officers), the business of a corporation shall be managed under the direction of its board of directors, each of whom shall be at least eighteen years of age. The certificate of incorporation or the by-laws may prescribe other qualifications for directors.”
The critical requirement here is that the board member be 18 years old. Beyond that, the co-op corporation or condominium association can enforce other criteria if they so choose.
According to Stuart Halper of Impact Real Estate Management, nearly anything is possible with respect to board participation - "Provided that it’s governed by the bylaws of the co-op or condominium," he says. "When a sponsor is involved, it’s very common for there to be non-resident shareholder board members. I’ve seen situations where a superintendent of a building was elected to a board, and another where a rent-stabilized tenant in a sponsor unit was elected. If it’s not specifically prohibited by the bylaws, and the candidate is over 18, they can get elected.”
Weisberg adds that certain logistical issues that might have swayed member votes in the past are no longer so much of an issue -- for example, the ability to physically attend board meetings is a non-issue in the era of Skype and FaceTime. With just some basic technology, owners who are not in residence can still participate. “People don’t need to be close enough to attend meetings,” Weisberg says. “Some boards today meet by conference call."
A common problem in common-interest communities -- whether they are co-ops, condominiums, or HOAs in urban, suburban or planned communities -- is filling the seats on the board. Volunteers are hard to find. That difficulty may result in having non-residents sit on the board. “We recently had a situation where two board members were out getting proxies for their slate," recounts Halper. "However, they didn’t have a third person to run against another bloc of candidates. We looked at the bylaws. It turned out that only the president was required to be a resident shareholder. So we decided that if they have the proxies and the votes, the managing agent would be the third board member.”
Sponsors add a whole other dimension to the problem. Weisberg explains that a sponsor’s ability to control the board of a property it converted to co-op or condo ownership is governed by the regulations issued by the New York State Attorney General’s Real Estate Finance Bureau pursuant to the Martin Act—New York’s 'blue sky laws'—which govern real estate syndication. Typically they allow sponsor representation on the board, but limit the period of sponsor control.
According to some legal pros, this can have a deleterious effect on the direction a board takes. Both Weisberg and Halper maintain that sponsors have interests more akin to investors than to resident owners. They are more interested in short-term appearance and value than the long-term health and stability of the property or building. That strategy is dictated by the fact that they are seeking ultimately to dispose of their assets in the co-op or condo association in a much shorter period to time than resident owners who have made a much longer-term investment.
In the final analysis, the participation of non-resident owners on co-op, condo and HOA boards is a fact of life in most common-interest communities. Unless otherwise stipulated by the bylaws or other governing documents, one does not have to be ‘in-residence’ to serve. In some cases one does not even need to be an owner to serve. Perhaps then, a little diversity may be a good thing.
AJ Sidransky is a staff writer at The Cooperator and a published novelist.