Q&A: Shareholders' Right to Choose Management Company

Q Do co-op shareholders have any rights when it comes to the selection of a management company for their building? And if they can’t directly choose which company will manage their co-op, can they attend the interviews with the potential new companies and ask questions to determine if they want their building managed by one company over another?

—Brooklyn Shareholder

A “Shareholders have rights with respect to the selection of their co-op management companies to the extent that the shareholders vote for the boards of their respective co-ops,” says attorney Jamie Heiberger-Jacobsen with the Manhattan-based law firm of Heiberger & Associates, PC. “In most situations, the cooperative corporation’s bylaws, whether explicitly or implicitly, empower the co-op board with the authority to choose the management company for the building. This means that the actual selection of the management company and any decision to change management companies is a matter for a vote of the co-op board at a board meeting. Of course, because the shareholders vote in the board members, the shareholders have indirect control over the choices of the board members—much like in a representative democracy. Shareholders can also communicate directly with board members or the board to voice questions or concerns, which may provide an avenue for addressing management company issues. However, a shareholder’s remedy for unhappiness with board decisions is the ballot at the next board election.

“While co-op bylaws could theoretically vest shareholders with the right to attend interviews with representatives of potential management companies, such a scenario is incredibly unlikely. In fact, most co-op bylaws don’t even permit shareholders to attend board meetings. This being the case, there is no reason to believe that a shareholder would have the right to attend interviews with management company candidates or that a shareholder would be allowed to ask questions at such an interview. While a shareholder may not possess the right to participate in this manner, a shareholder could certainly make the request to do so, but with the knowledge that the board has no reason to grant the request. The reality here is that the power lies with the board and, unless the co-op has very unusual bylaws, the shareholders will have to live with the board’s choices and voice dissatisfaction when electing the next board.”

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