Q. I live in a co-op in Bayside, Queens. We have not had a board meeting in almost two and-a-half years. I call and get no answer. Also, there is the issue that the president of the board is also the owner-manager of a property management company! Isn't this a conflict of interest? We get nowhere because of this. There are many other issues that I feel are being handled incorrectly, but there is no way to bring them up without a meeting! I know a meeting is supposed to be convened every year.
—Frustrated in Bayside
A. “There are a number of things wrong with this picture,” says Dennis Greenstein, a partner at the New York City law firm Seyfarth Shaw. “The failure to hold any meetings in a long time raises issues about the lack of governance of the building. For example, a board needs to set annual budgets, vote on proposed sales of apartments, and enforce certain provisions of the proprietary lease (such as exercising the board’s right of entry to perform emergency repairs and for compliance with laws). If a board is not meeting on an annual basis, the shareholders should seek to compel the calling of a special meeting of shareholders to elect new and responsible board members.
“First, it is important to distinguish regular meetings of the co-op’s board of directors from the annual and special meetings of the co-op’s shareholders. In general, a board is obligated to follow the co-op’s internal rules, which are set forth in the proprietary lease, bylaws, certificate of incorporation, and/or house rules. The co-op’s bylaws may provide for board meetings at regular intervals. Absent such rules, the board may fix the time and place for holding its own meetings. Board meetings are integral to a functioning co-op, as the board may only act at a duly held meeting (unless the board members unanimously consent to the adoption of a resolution authorizing the act).
“With respect to shareholder meetings, New York’s Business Corporation Law (the 'BCL') requires that a meeting of shareholders be held annually. Typically, the co-op’s bylaws set forth annual meeting requirements and also provide shareholders with the right to call special meetings after compliance with certain notice and percentage ownership requirements. A notice of a special board or shareholders’ meeting should state, and be limited to, a specific agenda.
“As a practical matter, it would be best to first notify the board, in writing, of its obligation to hold an annual shareholder meeting and to elect board members. The letter should be factual, brief, and not hostile. Keep copies of any letters that you send, and notes of any telephone conversations (date, time, who called whom, etc.). It is advisable to seek the professional assistance of counsel if the board fails to respond.
“There may be two options for shareholders to call a special meeting to elect a new board. First, typically, bylaws obligate the secretary to call a special meeting whenever requested to do so by shareholders owning at least one-quarter of the outstanding shares of the co-op. Alternatively, shareholders may have the right to demand a special meeting even without express authorization in the bylaws, upon satisfying certain requirements set forth in the BCL. Thereafter, the co-op board must call for a special meeting to hold an election. If the officer or officers listed in the bylaws as having authority to call the meeting fail to do so, then the shareholders signing the demand letter should retain an attorney to start an action for the court to compel the holding of a meeting and election of new directors.
“The fact alone that the board president is also the owner of the management company may not necessarily give rise to a breach of the president’s fiduciary duties; however, under the BCL, whenever a director has a substantial financial interest in a contract or transaction, this must be disclosed in good faith or known to the board. He added that co-op’s bylaws may have additional requirements regarding interested directors, but as a general matter, it is advisable for such director to not participate in any discussions, vote, or review matters in which such member has a conflict. Further, the BCL includes provisions that permit voting by interested directors, so long as the interest director’s vote is not the deciding vote by the board or, alternatively, the proposal is approved directly by the shareholders.”