When a Board Breaks Bad Righting the Ship at Your Co-op or Condo

On occasion, boards will supersede the will of their constituents. (iStock photo)

Owners and shareholders trust their elected boards with their very lives. Okay... it's probably not a life-or-death scenario, but residents of co-ops and condos do put a great deal of faith in their association's representatives to have their best interests at heart when it comes to their financial security and the maintenance of the properties in which they live. And, more often than not, boards rise to the occasion. Why even volunteer to take on such a responsibility if not for a noble cause? But alas, the human condition is flawed, and, on occasion, boards will supersede the will of their constituentsor worse, even take advantage or conspire against them.

Call to Service

Before we delve into what to do should your board break bad, it helps to contextualize what a board should be doing for the association.

“Board members have a fiduciary duty to act in the best interest of the co-op or condo and its residents,” says Mindy Stern, a partner with the law firm of Schwartz Sladkus Reich Greenberg Atlas LLP, based in New York City. “It should act as a group, at regularly scheduled meetings, and it cannot place personal interests (financial or otherwise) or the interests of a small group above the interests of the owners generally; it must keep personal information about owners and prospective owners confidential, and deliberate in private about building matters; it cannot delegate to others or ignore its responsibility to govern the affairs of the co-op or condo; it must act at all times in compliance with law, in a reasonably prudent manner, and should seek the advice of appropriate professionalsfor example, management, legal, accounting, engineering and architecturalbefore rendering decisions; and it should treat owners with civility, at meetings and in interactions with other owners and residents.”

Violators

Given Stern's thorough delineation of a board's responsibilities, it stands that anything outside of those lines would be a violation of the board's fiduciary duty, and a breach of its implicit agreement with its ownership. So how can these transgressions manifest?

Mark Elman, senior vice president with Citadel Property Management Corp. in New York City, relates several cautionary examples: “In one situation, the board president was constantly trying to hire their own vendors, even if the price wasn't right, or the vendor wasn't necessarily properly insured or licensed to perform the job, solely based on their personal relationship. That put shareholders in jeopardy, because bringing in these contractors would potentially create liability for the building.

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2 Comments

  • One of the issues you might want to look at in a follow up is when a building gets divided and the majority feels it needn't regard the interests of the minority. In our co-op, the old guard is about 55% to 45% new guard, and between threats, cajoling and family ties, the Board leadership has maintained its position for 6 years. The president uses the Co-Op's pliant attorney to harass shareholders who oppose her. The Business Judgement rule gives a LOT of leeway to Boards to misuse shareholder funds. The best remedy is a rule limiting board members to three consecutive years of service.
  • All good points. It is important to work with the managing agent for effective day-to-day operations.