Q&A: Investor on the Board

Q “We live in a condominium development of 130 units. One investor own 48 of these units. He’s taken two seats on the board since 1986. No one votes for him, I suspect he always votes for himself and gets on the board. Can this be possible? He is the treasurer and in control of the board. How can we get him out?”

—Concerned Condo Owner

A “The question posed is quite common in both cooperative and condominium developments,” says Attorney Jeffrey M. Schwartz, a partner with the Manhattan-based law firm of Wolf Haldenstein Adler Freeman & Herz LLP. “In the scenario presented, the investor still owns approximately 36% of the units. Although the precise percentage which most often dictates the amount of representation on a board of managers in a condominium is determined based on common interests, for purposes of the question we will assume that 36% is the applicable number.

“The condominium’s bylaws dictate how many seats a holder of unsold units (often the sponsor or a subsequent purchaser who is granted the same rights as the sponsor) may continue to hold on the board after the first closing. Most often, these numbers are contained in either article 2 or article 3 of the bylaws. The attorney general’s regulations which govern condominium conversions provide that a sponsor or holder of unsold units cannot control a board for more than five years after the first closing; however, those same regulations allow a holder of unsold units to retain seats based on the number of units it continues to own. Again, the precise terms of the bylaws must be reviewed but it is possible that because the investor still owns a large percentage of units, it is entitled to two seats but those two seats cannot make up a majority.

“It is assumed here that the board at issue consists of more than five members because if it were less those two seats would make up a majority which would not be permissible. It is also important to remember that although the bylaws do allow for retention of two seats as long as a certain ownership threshold is maintained, two separate individuals must be actually serving on the board. The investor cannot just say that it is “holding two seats.” It actually must have two representatives who attend each board meeting. The investor cannot vote twice nor can a board member give a proxy to someone to vote on his or her behalf.

“If there is no language in the bylaws which allows for retention of a specific number of seats based on ownership percentages, then the actual voting will determine if the investor can retain any seats at all. The investor can always vote its interests, however, if the residents all appear at the meeting, based on the percentages (36% for the investor and 64% for all other owners), if everyone agrees with the person asking the question, then it would seem that the residents could merely outnumber the investor and the investor would not be able to elect any members to the board. Very often condominiums have low turnouts at meetings and because the investor has 36%, that might be enough to outvote everyone else. Clearly if less than 36% of the others attend the meeting, the investor will be able to control the election. But if 50% of the unit owners appear at the meeting and the bylaws have no specific language which provides for designated seats based on ownership, then the residents will be able to elect those they want on the board.”

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