Q&A: Open Election Period

Our co-op elected its new officers, as usual. However, this year, there were two  amendments to the proprietary lease, one for staggered board terms and the  other to change our transfer fee, or flip tax, from one month’s maintenance to two percent. Our lease requires at least 2/3 or 66 percent of  the shareholders to pass amendments. It’s very much a standard 1989 document. The flip tax was defeated last year, but  the board insisted on trying again and launched a major offense to get it  passed. As such, they are keeping the voting open, although the new officers  for 2007 were duly elected and are now attending to their appropriate duties.  

 I doubt our boilerplate proprietary lease specifically says that an election is  open for ‘x’ amount of time, but the idea of an endless open-ended election seems legally  weak to me. What are New York laws pertaining to shareholder votes?  

 —Worried About Election Issues  

 “The reader poses an interesting question which needs to be considered in the  context of the organizational structure of the cooperative,” says Lisa Breier, an attorney specializing in residential and commercial real  estate in New York City and managing partner and co-founder of Breier  Deutschmeister Urban & Fromme, P.C. “A cooperative corporation is generally run the same as any other shareholder  corporation. It must satisfy formal requirements and operate under the bylaws of the  organization. The board of directors must meet regularly and attend to corporate business.  Accurate minutes are kept and important business decisions are memorialized in  resolutions. Most cooperative bylaws provide that the shareholders must vote on  issues that effect the corporation including amendments to the rules that  govern the cooperative including changes to flip tax policies.  

 “Directors have a duty of loyalty to the corporation and a fiduciary obligation  to act in the best interests of the organization. The business judgment rule  insulates the corporation’s directors when making decisions provided those decisions can be reasoned to be  in the best interest of the corporation. If the actions of the board are to be reviewed for legitimacy, these actions  must be considered in light of the business judgment rule whether the decisions  are made at the monthly board of directors meeting or the annual shareholder  meeting.  

 “In any corporate vote, the voting is not closed until the presiding officer  announces that the meeting is adjourned. It then falls within the discretion of the inspector of election to keep the  polls open beyond the specified hour and to continue accepting votes. Under New York case law unless the bylaws, corporate rules or governing statutes  strictly prohibit to the contrary, votes may continue to be received after  balloting has closed provided that the final results have not been officially  announced. Once the final results have been announced to the shareholders, no  further votes can be accepted. The reasoning being that equity weighs in favor of counting shareholder votes  even if keeping the voting open was improper. Nevertheless, directors who keep voting open risk the wrath of the shareholders  who can continuously and without reason change their vote. Until voting is  closed, no shareholder decision is final and proponents of both sides can  continue to lobby prompting the issue to potentially become a thorn in the side  of the board of directors.”  

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