Our co-op board hasn't held a shareholders meeting or an election in three years. What are our next steps?
Shareholders need to comply with co-op bylaws and business corporation laws governing co-ops in New York.
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Our co-op board hasn't held a shareholders meeting or an election in three years. What are our next steps?
Shareholder meetings may have been disrupted during the pandemic but they must still be held. “If your board is actively preventing meetings or hasn’t called one in more than 13 months, shareholders with 10 percent of the shares can get together and demand an annual meeting to be called to elect directors,” says Steve Wagner, a real estate attorney, and partner at Wagner Berkow & Brandt.
Virtual meetings quickly became the norm when Covid-19 shut New York City down at the beginning of the pandemic and virtual meetings are allowed through December 2021 subject to any extensions.
If the co-op does not call a meeting, the shareholders themselves can call a special meeting of shareholders where the sole purpose will be to elect a new co-op board.
“Your apartment is very often the most valuable investment that you have, and if the co-op is not being handled like a business or the people on the board are not being honest, and not doing what’s in the best interest of the corporation, sometimes you have to take over,” Wagner says.
Applying legal leverage
In a situation like this, alarmed shareholders will join together to hire an attorney to advise them on the process of calling a special meeting, and ultimately help ensure that an election, when held, is fair.
You and your neighbors will need to understand and follow the written requirements and specific timetable of how and when notices should be delivered for the special meeting. For example, the meeting needs to be set for between 60 and 90 days from the date of the written demand, and if the board doesn’t call the meeting within five days of the notice, any shareholder can sign the demand and call the meeting.
Wagner regularly walks shareholders through this process, making sure they comply with the co-op bylaws and business corporation laws that govern co-ops in New York.
“Sometimes, just having a lawyer in place can be enough to get things corrected,” he says.
Ensuring a fair election
Getting a shareholders meeting doesn’t necessarily mean there’s going to be a shake-up of the board. “The shareholders who are demanding the meeting need to organize so that when the meeting is actually held, the election is fair and they will prevail,” says Wagner.
That can be challenging because proxies, which allow shareholders to give their right to attend and vote to someone else, are often sent out to all the shareholders and Wagner says “there’s no rule that prevents the board from sending out proxies for themselves with the meeting materials and using them to vote for incumbent board members. If the board refuses to call a meeting and is intent on retaining control of the board, proxy fraud may be a significant risk.”
If you suspect proxy fraud, you and your attorney should make that challenge known right away in writing. You will need to state your concerns and to demand to look at the ballots, proxies, sign-in sheets and other documents contained in the co-ops files to ensure signatures all match.
(For more information on this, we have an article on how to find out if your co-op board election results are fraudulent and what to do about it).
The shift to virtual meetings
There are several companies with experience of conducting virtual elections and they have grown in popularity as a result of the pandemic. The companies also offer balloting and oversight services. There’s anecdotal evidence of more shareholder involvement at virtual meetings but there may still be some unresolved questions.
The balloting companies will have to take extra steps to verify shareholders, proxies and ballots. For example, shareholders might be given a unique QR code so when proxies or ballots are submitted, the code is used to confirm the vote. “These issues are readily resolved at a physical meeting but with a virtual meeting it involves technical expertise to confirm the validity of proxies and ballots,” Wagner says.
Another area where there may be conflict, Wagner says, is in whether or not email addresses can be given out to shareholders who want to communicate with their neighbors. Some shareholders may be spending more time away from the city, increasing the importance of email communication. However, there’s no case law on this and that can put residents challenging the board at a disadvantage.
“It's not a level playing field if the board has the email addresses and a challenger does not,” Wagner says.
The court of last resort
“It’s more efficient to win an election than take someone to court to throw them off the board,” says Wagner, and this is particularly relevant now as the pandemic has slowed court cases to a trickle.
In fact there’s some disagreement about whether or not a lawsuit is required to challenge an election. “Some attorneys take the position that it is,” Wagner says, but not everyone agrees with that. “It is expensive to begin a lawsuit, just to challenge an election,” he says. His view is that it’s important to get to the correct result as quickly as possible rather than delay with court proceedings.
“When I am representing the building, I don't represent one side of the other, I represent the co-op or the condo, as the case may be,” he says.
However, when representing the challengers of an election who are met with obstruction, Wagner says in those circumstances, court action may be the only way to effectively challenge an election.
“The budgets of many New York City co-op and condo buildings are in the multimillion dollars. Think of the board members as people running a multimillion-dollar real estate business, and the value of your apartment is going to depend on the proper administration and running of that building,” he says.
New York City real estate attorney Steven Wagner is a founding partner of Wagner, Berkow, & Brandt, with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272.
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