Examining Books and Records When Do Owners Have a Legal Right to Do So

Scenario: A shareholder or unit owner suddenly demands an inspection of the board's "books and records." Since the board is not guilty of financial impropriety or the squandering of funds, it has nothing to hide. Nevertheless, the board does not wish to deliver ammunition, which can be used to sow discord within the residential community.Question: Can the board lawfully refuse the request for an inspection of its books and records? Answer: It depends. Under common law, the term "books and records" generally applies to all documents pertaining to the board's business affairs, including the cooperative's Certificate of Incorporation or condominium's Declaration; list of shareholders or unit owners; various contracts transfer records; "tenant files"; minutes of the board and shareholder proceedings; financial statements; brokerage statements; records pertaining to receivables and payables; Books of Account (i.e., receipt and disbursement ledgers, purchase orders, and invoices); and insurance records.Cooperator's Rights

Corporate shareholders in general are afforded certain rights, both by statute and under common law, to inspect books and records of companies in which they own an equity interest. A cooperator's right of access to building documents therefore derives primarily from his or her legal status as a shareholder in the apartment corporation.

The statutory right of inspection is rather limited in scope insofar as it relates to only three kinds of documents: financial statements; shareholder lists; and minutes of shareholder (as opposed to board) meetings. Moreover, shareholders seeking access to any of these documents are required under the statute to meet certain threshold requirements.

Shareholders owning at least five percent of a company's stock, or those who have been stockholders of record for all least six months, irrespective of the extent of their equity interest in the company, have an absolute right, upon written request, to obtain the preceding fiscal year's financials, as well as the most recent interim financials to the extent that these have been distributed to the shareholders. Most co-op bylaws require that year-end financials be distributed to all shareholders as a matter of course within four months of the fiscal year end.

Shareholders meeting the same threshold eligibility requirements, or their authorized agents, have the right, upon written demand with five days notice, to inspect and make copies of the shareholder proceedings. Such an inspection, however, may be denied in the absence of a sworn statement that the review is desired only for purposes relating to the business of the corporation and that neither the shareholder nor his authorized agent has participated in the sale of a shareholder's list over the past five years.

Thus, if a board wishes to adopt a hard line towards a request for access to these documents, it should first check to see that the demand was actually initiated by a shareholder of record (as opposed to a non-owning spouse, relative, sub-tenant, etc.) and that the shareholder meets the threshold eligibility requirements.

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5 Comments

  • How does your office help Califolrnia condo to enforce inspection of books and records locating in Califfffffornia? Sincerely, Lewis
  • Can the association charge a Unit Owner to examine the Books and Records of an Association
  • If a shareholder wants a list of all the shareholders, does the Corp have the right to refuse if they feel it is to pull voting toward their own agenda?
  • Can a cooperator ask to examine the invoices that relate to a particular expense. For example plumbing expenses that he paid for that he thinks that the Coop should have paid?
  • If an HOA (Homeowners Association) in Texas has received a request, supported by Deed Restrictions and Bylaws that allow for a Homeowner to access "Books and Records", what limitations to Books and Records can be successfully asserted by the Board of Directors/HOA?