Transitioning from Sponsor to Board Control The Birth of a Board

Building a successful enterprise from the ground up involves the talent and commitment of dozens—if not hundreds—of people. It’s no different with a co-op or a condo, especially in the earliest days of its existence when it makes that transition from sponsor-run to board-run. Sometimes that transitional road can be bumpy, and it can be a challenge turning the seeds of a co-op or condo into a full-grown, fully functioning community—especially if the sponsor and the board in question don’t always see eye to eye. If all of the parties involved can maintain focus and keep the greater good in mind, however, the effort ultimately will pay off.

Where Do Boards Come From?

Just the way a constitution sets the stage for how a country will be run, a co-op’s bylaws determine how it will function, and how it will change hands from the sponsor who created it to the residential board members who will guide it in the future.

“Basically, the transition is laid out in the bylaws,” says attorney Leonard H. Ritz, of the law offices of Adam Leitman Bailey, PC in Manhattan. In most situations, the board will be comprised initially of friends, employees, or other designates of the sponsor. As more units are sold within the building, that number will slowly shift.

“On day one, all board members are designated by the sponsor,” Ritz says. Elections are then held at the first unit owner meeting. Over time, the board will be filled with more actual residents and fewer members chosen by the sponsor until the residential members have a clear majority. Eventually, if all goes as planned, the sponsor will have little or no representation on the board.

In a conversion scenario, the sponsor is required to turn over control of the board after 50 percent of the units have been sold, or after five years—whichever comes first, says attorney Stuart Saft of the law firm of LeBoeuf Lamb Greene & MacRae LLP in Manhattan. In new construction, the sponsor has the right to designate at what percentage he or she must turn it over, but they must turn it over by the fifth year, just as in the conversion scenario.

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Comments

  • I am board president of a Condo in Midtown. The sponsor has been here for 30 years, since 1985. They sold their unsold units (75) to another investor group in 2000. There are currently 42 Sponsor units in the building and I want to know if there is any laws that would help us get the sponsor totally out of the building.