Some relationships seem destined for rocky paths. Brothers and sisters. Mothers-in-law and daughters-in-law. Sponsors and boards. Although certainly not all board and sponsor relationships travel the bumpy road, many do. Understanding the whys and hows behind that discord can go a long way toward preventing trouble - or mending fences and setting a smoother future course for relationships that already have gotten off to a poor start.
The basis of most disagreement between boards and sponsors usually stems from just how involved the sponsor decides to stay once a building has gone co-op or condo - and that amount of involvement is decided by the sponsor from the beginning, as soon as he or she prepares an offering plan. The plan is the first step toward converting a building to co-op or condo status. "The sponsor's responsibilities are whatever the offering plan says they are and those vary in each case," says Stuart Saft, an attorney with Manhattan-based Wolf Haldenstein Adler Freeman & Herz LLP. "It's up to a sponsor to decide how active he [or she] will remain."
The offering plan details every aspect of the building in question, down to the last square inch in the basement's darkest corner. Before conversion can begin, the plan must be approved by the Attorney General's office - a process that can take up to a year to complete.
In a non-eviction plan, for a conversion to take place, the sponsor must sell at least 15 percent of the building's units. The plan can then be declaired effective. The building is then considered a co-op or condo, whether or not the sponsor sells the rest of the units. When the sponsor surpasses the initial 15 percent mark, the co-op owners are issued their shares and the condo owners get their deeds. At this point, a board is elected.
If the sponsor retains more than 50 percent ownership, he is de facto in control of the board, with control over enough seats to hold a majority in any vote. "If there are five seats on the board, he can designate three for himself," says Jules Reich, president of Somerset Investors in Great Neck, N.Y. "Generally speaking, although the sponsor may have the final vote on things, it would be unproductive for him to operate this way. The best idea is for the sponsor and the board to work together in the best interest of the building and its residents."