Limits of Board Power Use vs. Abuse—and How to Tell the Difference

 Everybody sometimes disagrees with the decisions of their co-op, condo or  homeowners association board. Maybe the choice to rearrange the garbage  receptacles out front seems ridiculous, or the ongoing clattering of machinery  on the roof is driving the top-floor residents nuts—but the board seems determined to let it fix itself. These are the kinds of  inevitable complaints that every board has to deal with sooner or later, and  most manage to handle such issues with prudence and aplomb.  

 But what if the board does things that seem to be beyond the pale—perhaps even illegal? Where do boards’ powers end? While the board is the governing body of the co-op or condo  association, there are certain boundaries and limitations that they should  operate within.  

 There are numerous examples across the country of alleged abuse of power by  condo boards and HOAs from preventing owners to put up political signs or flags  or changing the color of their paint trim or window shades. Pets are also a  sticking point as this California woman found out: Pamela McMahan didn’t expect her cocker spaniel Ginger to become a problem at a historic condominium  building in Long Beach. But she was fined $25 each time she walked her dog  through the lobby because HOA rules required all dogs had to be carried.  McMahan, an elderly woman who walks with a cane, said she couldn’t carry the dog. She racked up $1,600 in fines and has since moved from the  building.  

 Overreaching?

 Overreaching boards may call to mind white-glove, old-money co-ops in  prestigious zipcodes, but the truth is that the issue is just as troublesome in  suburban condo developments as it is in ultra-exclusive urban high-rises. One  recent example of the turmoil caused by board stagnation and overreach is the  450-unit Shadowood condominium complex in Reston, Virginia. According to a  recent article in The Washington Post, "the Shadowood Condominium Association imposed fees for things like calling  the management office or having the wrong color blinds. It towed tenants’ cars for unpaid fees—on the day before Thanksgiving. It turned off the heat or air conditioning to  apartments of owners who were in arrears or in violation of its many rules."  

 In 2011, a judge ruled that the association could not level fines and fees not  explicitly spelled out in the condo's original master deed, and issued a legal  injunction prohibiting the Shadowood board from collecting any more such fines.  The board appealed to the state Supreme Court—and lost. Even with the most recent decision in favor of the condo's residents  however, the issue is far from settled. According to the Postcoverage, residents are still furious at the association board for allegedly  spending common funds on legal bills, failing to provide documentation for  contracting expenses, and fostering an antagonistic, "intimidating" atmosphere  in the development. On the other hand, Shadowood administrators argue that  collecting fines and fees is the only effective tool they have to enforce house  rules and insure that residents and renters pay their fair share of the  complex's operating expenses.  

 Regardless of which side of the board/resident divide one falls on, says Pia  Trigiani, an Alexandria-based lawyer with extensive expertise in community  association law who was quoted in the Post article, “Every association needs to evaluate what their governing documents grant them  the authority to do. And...they’re going to need to think of how this case impacts them.”  

 The Law Says

 How are board's powers spelled out? How do boards know what they can and can't  do under law? Fortunately in New York City, there are laws that serve as  guideposts that apply to real estate:. For example, condos are governed by the  New York Condominium Act, and the Real Property Actions and Proceedings Law  (RPAPL) deals with landlord-tenant issues between a co-op and its shareholders.  Case law interprets these statutes and sets legal precedent for co-op and condo  owners; indeed the law governing co-ops in New York is mostly created by  judge-made case law.  

 One statute originally created to regulate businesses, the Business Corporation  Law—or BCL, for short—primarily governs how cooperative corporations, including housing co-ops, must  be run.  

 “In condominiums, the powers are spelled out in the bylaws and there is usually a  long list of examples of what those powers are,” explains attorney Jeffrey S. Reich of the Manhattan-based law firm of Wolf  Haldenstein Adler Freeman & Herz LLP. “These can include items such as 'the board has the right to borrow X amount of  money' and 'the board has the right to amend, add to, or supplement the house  rules'.”  

 In most co-ops, there isn't a general authority provision in the bylaws as  there is in condominiums. “Boards usually derive their rights from the Business Corporation Law of New York  which says that the corporation is operated by its board of directors,” says Reich. He advises co-op boards and shareholders to check with the  governing documents, their bylaws and certificate of incorporation in order to  familiarize themselves with board rights.  

 “The board of directors or board of managers in the condominiums or co-ops would  have control over and absolute discretion over what are called business  judgments. In fact, there's a concept in the law called "the Business Judgment  Rule" meaning, any decision by a board, so long as they're authorized to act  for the condo or co-op and as long as it meets the Business Judgment Rule, the  courts won't second-guess boards,” explains Abbey Goldstein, an attorney at Goldstein & Greenlaw in Queens. This means that if a board chooses to paint the hallways  green, put in new equipment or raise the maintenance fee, they are authorized  to do so and can proceed because all of these decisions are deemed to be  reasonable and within their business judgment, he says.  

 Co-ops vs. Condos

 In terms of the power of the board, a few significant differences exist between  condominiums and cooperatives. “Co-op boards generally have broad discretion in terms of approving or denying  purchasers or sublet applications,” says attorney Steven D. Sladkus, a partner at the Manhattan-based law firm of  Wolf Haldenstein Adler Freeman & Herz LLP. “The only way a condominium board can keep someone out of their building is  exercise the right of first refusal, which means that then their only recourse  is to buy the apartment on the same terms that the purchaser would buy the  apartment. The seller would get the same price from the board as with the  potential purchaser but it doesn't matter to them who is getting the apartment,  since they are receiving the same price. This way a board restricts the  purchaser but they would have to purchase the unit.” This right of first refusal applies to both purchases as well as leases in the  condominium.  

 Aaron Shmulewitz, a partner with Manhattan-based Belkin Burden Wenig & Goldman, and head of the law firm's co-op/condo practice, says generally, the  governing documents tell the tale. “Co-op boards have significantly greater rights than condo boards do, just  because in terms of practice, in terms of actuality, condo boards generally  only have the right of first refusal for purchases, sales and leases. And that’s what makes condo apartments more attractive, especially to foreigners, and  that’s what makes the prices for condos higher than co-ops. And generally speaking,  therefore, co-op boards have the right to inquire into anything.”  

 In a co-op, the board has much broader powers to enforce the terms of a  proprietary lease than a condo has in terms of enforcing a set of bylaws, says  Reich. For example, in a co-op, the board has the ability to send out a default  notice or to threaten or carry out the termination of a lease if a shareholder  is delinquent on the payment of charges. In a condo, the board has few tools  for residents who do not follow the rules: they can go to court and get a court  order, which is costly, or if their bylaws have a fine provision, they can  enforce them, he says.  

 Lastly, co-op boards generally do not have restriction on how much they can  spend for alterations, improvements and repairs. Condo boards do have limits in  the bylaws saying for instance that they cannot spend more than $100,000 in a  given year or $5,000 on a given project without resident approval.  

 Safety and Security

 Security is a top priority for co-ops and condos. Many choose to install  security cameras, have doormen or guards and may require guests sign in. These  measures are meant to protect residents and the property and for the most part,  the board has the right to make security decisions.  

 “The board is responsible for the security of the property so they can make  decisions as needed,” says attorney Dean Roberts of Norris McLaughlin & Marcus, P.A. “Residents do not have an expectation of privacy in common areas, hallways,  lobbies, laundry rooms, so any security measure installed there is usually  reasonable.” Roberts continues to say that security only can become a problem if say, a  camera is pointed at the interior of a particular unit or measures target  individual owners or shareholders.  

 Shmulewitz agrees. “Because the common areas are governed and managed and controlled by the  building, it’s the discretion to operate the building as it deems appropriate, and  maintaining security is a very laudable goal.” As for monitoring—and entering—private apartments on the other hand, Shmulewitz says that's a very different  matter. “If we’re talking about an actual emergency, a fire that is actually burning, the  board...has the right to break down the door and put out the fire. The same  thing with a flood that’s happening—if a pipe bursts and water is actively flowing. Next on the list down one notch  is a slow active leak, water is seeping from a pipe slowly. The board probably  doesn’t have the right to break down the door. It can try to make appointments with  the apartment owner to enter on written notice. If after several attempts the  owner does not grant access, the board has the right to go to court, to get a  court order.”  

 “You couldn't use [security] to harass,” Goldstein adds. “In other words, if I don't like my neighbor, I can't decide, if I'm the board  president, to set up a camera outside their apartment, just so they know  they're being watched. That would be bad faith. Boards always have to act in  good faith. They can't act in bad faith. So, something would be lawful so long  as done in the best interests of the co-op. If it's meant as a vendetta or  based on personal animus, automatically becomes illegal.”  

 In general, larger buildings may have more security because they can be more  susceptible to breaches. For example, a large highrise would have more stringent measures such as a 24/7  door person, electronic controls on all doors leading into the core of the  building that require an electronic key card, security cameras at all building  entrances and exits, procedures requiring residents to come to the lobby to  accept deliveries of food and similar items and procedures requiring telephonic  resident authorization before a visitor is allowed to pass through the door  leading to the core of the building. On the other hand, a smaller community  would just have locks or maybe a buzzer system.  

 Access to Units

 Situations may arise in which the management or service provider may need access  to a resident's unit to fix a leak or check on a electrical problem. In what situations does the owner have right to privacy and when can their unit be  accessed?  

 Both types of boards have the right to access units in order to inspect, repair  and maintain the units, says Reich. He adds that in co-ops, if a shareholder  refuses to provide access or give a key to the unit, that can be a lease  default; it is a faster way in to send a default notice of termination than to  go to court seeking access to the unit.  

 Roberts adds that boards are required to give “reasonable” notice before entering a unit, the exact time frame usually specified by the  by-laws. If the situation is an emergency, affects other units or common  elements, the board has the power to enter immediately.  

 Right of access is put in place to ensure that unit owners and shareholders are  in compliance with house rules but also determine if any repairs are necessary  or check on situations that may be affecting other apartments, Goldstein says.  

 Releasing Information

 The co-op or condo board has on hand many resident records such as personal  information, financial statements, delinquencies, complaints, comments, just to  name a few. While certain members of the board and management are able to view  this information, not all third parties have access to it.  

 Sladkus explains that in a co-op, the business corporation law spells out  certain circumstances that apply to personal information. “You are allowed to ask for a list of names and addresses of other shareholders  so long as you are not using those names for a business purpose, such as  solicitation. Boards can give push back, because most boards don't like to give  out personal information. But boards are required to give contact information,  under the law.”  

 There is no law or bylaw provision that states that boards are required to keep  information private, for instance, not share the financial information of a  resident, but the board does have a fiduciary duty, protecting personal  information says Reich. So, there is no law that would prohibit the board from  making copies of your tax returns, but it would certainly be a breach of their  fiduciary obligation, says Sladkus.  

 Roberts likens board executive meetings and discussion with the humorous analogy  of “What happens in Vegas, stays in Vegas.”  

 “Board members need to realize that they will be learning a lot of personal  information which they cannot disclose or talk about amongst themselves once  they exit the meeting. You don't know how many times I've had board members  talking about a particular person they have just discussed at a meeting and it  turns out that the person is right there in the elevator with them. Boards need  to exercise confidentiality.”  

 Any confidential personal or financial documents should be kept secure, adds  Goldstein. “You don't want anyone to be able to wonder into the basement area and just go  through the records or take the records, etc. Usually the vast majority of  records are maintained by the managing agent and some co-ops will have  significant records on premises, existing contracts, sometimes files for  individual shareholder complaints, and repairs. They should be secured, should  be under lock and key both to make sure that records aren't taken, but also so  everybody can't find out about everybody's business surreptitiously.”  

 Condo and co-op boards are put into place to make sure the association runs  smoothly. While board members have the power to make decisions regarding many  association operations, they have to make sure not to overstep their boundaries  and intrude on the privacy or security of residents.   

 Maggie Puniewska is an editorial assistant at The Cooperator and other  publications.

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7 Comments

  • how to get rid of an illegal board and management company
  • how to get rid of an illegal board and management company
  • Great article. I have a question -- what are a co-op's board's obligations (legal? moral?) when it comes to notifying residents of a crime that has occurred on the property? In my building, cars were vandalized in the garage. The board and management company have refused to notify shareholders (only the "lucky few" have found out by word of mouth from the people whose cars were damaged). This seems like a real failure on the part of the board and management company; how can residents protect themselves and their property if they are denied the opportunity to heighten their awareness after a breach of security has occurred? Any insight you can offer would be greatly appreciated.
  • Does anyone know what a coop shareholder's rights are if accused without ground of being a nuisance to to the building, and being threatened with the lease termination. (All in revenge for asking that radiator noise be repaired) ?
  • our by laws require that a certain percentage of your floor should be carpeted in order to avoid noise. However the board has declined to enforce it and now I am awakened by my neighbor who comes home at 3 AM
  • Does the board of directors members have the right to go through personal resident files where their private info is regarding SS #, background check, etc...?
  • I am an owner of one of six condominiums in St. John, US Virgin Islands, five of which, including mine, are Vacation Rentals. They were completed in 2004. Not having originally intended to purchase a condominium, but a single residence instead, when I did finally purchase the condominium, shortly after closing, I naturally had some questions for the owner of the vacation rental agency: 1) Is there a COA? Yes. 2) Does it have a President? Yes. 3) Has there every been a COA meeting? No. (For all sorts of reasons it didn't take me long to have a bad gut feeling.) I contacted the President and together we jump started an in-name-only entity into existence and began having bi-annual meetings. Since the agency had been in existence for 20+ years I believed in good faith that all was in financial order as it should be, but queasy feelings trailed me and it became clear that the vacation manager was trying to sink my rental business by renting my condo out for very few nights. I left the agency in 2013 and have steadily grown my single rental condo business ever since. Not long ago the current Board President (not the same person) "slipped" and made reference to paying the vacation agency a "quarterly management fee" which I had never heard of. I asked him if he would kindly tell me the amount of monthly COA dues he pays. He says he pays none at all and to ask the vacation agency owner about it. I politely asked agency owner to refresh my memory and tell me what amount of my COA dues went to "Management." I have received no answer and it is not difficult to figure out why he won't answer. According to my calculations I have paid approx. $82,000 more than my neighbor "to the COA" since I closed. No financial reports are ever issues, I have no idea how much anyone else pays to the COA, I don't know if a separate bank account exists, or how much money is in it. I see an occasional Excel spreadsheet from the angency upon occasion. It certainly looks like trouble to me. According to the deed each owner owns an exactly same percentage of the property. This is a breach of fiduciary conduct by one or more persons is it not? I suspect there's more to it than that. Wilffull malfeasance? Deliberate non-disclosure. ETC. I am sickened by the situation and also terrified. No one else has ever asked questions before and the last one anyone would expect to ask questions is me, English major who hates math and budgets. Our Treasurer resigned so I asked the "original President" to be "Acting Treasurer" which of course means basically nothing. He agreed but said he "doesn't understand budgets." I know he has an MBA from Harvard and holds a "privately held family investment company." I am playing "dumb blonde" and am attempting in various ways to lead several people to believe I have forgotten the matter entirely or am too busy to care. Since the agency owner has a great deal more money than I do am I already legally done in before I begin? I am about to purchase contents insurance and am waiting (rather long) for an overview from a stateside attorney. In the meantime any comment that might enlarge my understanding of the matter or broaden my perspective about it would be appeciated very much.