This article first appeared in Cooperator News.
In many ways co-op, condo, and HOA living represents the most basic form of representative democracy. Like the ancient Athenians, we gather periodically to elect a small group from among us to represent our joint interests and to oversee the finances and well-being of the community.
Ah, now, if only it were that simple.
Governing Law, Governing Docs
Where does the authority of the board come from, and how must board members be chosen? That’s usually determined by a community’s governing documents and state condominium and co-op laws.
“A cooperative corporation, which has as its general purpose the issuance of stock certificates and proprietary leases or occupancy agreements to its shareholders for use of a building for residential or mixed use co-op is governed by the New York Business Corporation Law (BCL),” says Dennis Greenstein, a partner with the law firm of Seyfarth Shaw in New York City. “It is further governed by the co-op’s certificate of incorporation, which is filed with the New York Secretary of State, and the co-op’s bylaws, which are thereafter adopted by the initial board of directors of the corporation.”
“In Massachusetts,” says Ellen Shapiro, a partner with Allcock & Marcus, a law firm located in Braintree, “the rules governing condominium elections emanate from both state laws and governing documents.” How often elections are held depends on the governing documents of the condominium association, and the terms of the trustees as established by those governing documents. “If the documents say a board term is for one year, there must be an election every year,” explains Shapiro. More traditionally, terms are staggered so that terms are either different length of time, or start and end in different years. In those cases you have to have an election every year—typically at the annual meeting—but not for all the board seats at the same time.”
For co-ops in New York, explains Greenstein, “The BCL requires that a meeting of the shareholders be held annually for the election of directors and other business to be transacted on a date fixed by or stated under the bylaws. The BCL, the certificate of incorporation and or bylaws typically state, among other things, when and how the directors may be elected. The election of directors is held at the annual meeting and occasionally, due to an unusual circumstance such as a request by a certain number of shareholders or the board, may also be held at a special meeting of the shareholders called for that purpose at some other time. The board will select the actual date, location and time of a shareholders’ meeting.”
Who Runs the Show?
“The board will decide with the input and guidance from its managing agent and counsel to the Co-op how the election process will work,” explains Greenstein. “For example, typically the managing agent will arrange for the location and time of the meeting to be held and the distribution of the notice of the meeting and related documents. The notice of the meeting will provide, among other things, the number of directors being elected, the term of each and the names of the candidates. The notice shall also state if the meeting can be attended in person, virtually, or a hybrid of the two. Shareholders can choose to attend in person, Zoom, or phone. The electronic or telephonic information detailing how to connect to the meeting for any of the options will be provided to them. We strongly recommend that counsel to the co-op review drafts of the notice of the meeting, proxy, and a cover letter to the shareholders, which explains the meeting and voting process. The contact information for the person at the managing agent’s office to contact with any questions should be included on this notice.
Counting the Vote
“Generally, in Massachusetts,” says Shapiro, “rules for tabulating the vote are not found in documents or statutes. Sometimes the counting is done by management or a third-party election service. During the covid pandemic, we got creative with written proxies and electronic voting. Typically, the board makes that determination because they set the rules of the election. In the event there is a contentious situation where there is no trust in the process —which does happen—we suggest that the board set up a committee or election supervisor. That committee should consist of two or three association members. It’s important to make sure that when the count is done there is a board member, someone from the hostile group and the association attorney present. In any event, the association must follow whatever rules are laid out in the governing documents, if any.”
According to Andy Marks, an executive with Maxwell Kates, Inc., a management firm in New York City, and former president of his own co-op, “Votes are tabulated by inspectors of election as provided for in the BCL for co-ops or condo bylaws in New York. The managing agent is often elected or appointed to serve in this capacity.”
Proxies
If a shareholder or unit owner can’t attend a meeting to cast their vote in person, they can vote by proxy. Marks defines a proxy as, “a designated individual who represents a member in the shareholders’ meeting, with a legal document that proves such authority. Proxies are required to be accepted per BCL 609 for co-ops and the condo bylaws.”
“The BCL and the bylaws of co-ops provide that a shareholder can attend in person or by proxy,” says Greenstein. “Whether it is an in person, virtual or hybrid meeting, the managing agent will send a form of proxy with the notice and instructions regarding the completion and conditions of the counting of the proxy. There are general proxies and directed proxies. The proxy is given by the shareholder to someone else to attend on his or her behalf. A general proxy names the designated person to stand in the shoes of the shareholder. Therefore, such a person has all of the authority to vote for the candidates he or she chooses. A directed proxy generally gives the designated proxy holder the right to vote for the candidates on the ballot selected by the [granting] shareholder.”
Shapiro notes that in Massachusetts there are three different potential proxy types for condominium association voting: The first is for the establishment of a quorum only. The second is for the purpose of establishing a quorum and for all other purposes. This type of proxy gives the proxy holder the right to vote in the election by their own discretion. A third type provides for counting in the establishment of a required quorum, and for voting—but only as directed by the grantor of the proxy.” Like the directed proxies Greenstein mentions above, Shapiro notes “the grantee of the proxy may not make an individual voting decision in this case; they must abide by the directions for voting provided by the grantor of the proxy.”
Checks & Balances
“It is important that there is a secure and confidential method in place—one independent of both the current board and community—which allows the collection and tabulation of votes, as well as the announcement of winners,” says Marks. “At Maxwell Kates, we use a combination of paper ballots that are mailed to each owner or shareholder, and physically collected, and digital hard copy ballots (PDFs) that are securely shared. We are also exploring new online voting via secure vote tabulation software specifically created for this purpose. It depends on the specific methods called for in the governing documents. The vote tabulation would be carried out by the inspectors of election, who may or may not be the manager serving in this capacity.”
The role of a manager, Marks adds, is to remain a dispassionate third party with no stake in the outcome. “Our job is to continue providing the excellent service for which managers are known, and to advise the newly elected board regardless of which owner or shareholders are elected.” Self-managed buildings typically use their attorney or election company to handle the election.
When Drama Erupts
What options exist if a board refuses to hold elections? Greenstein explains: “If they refuse, there are provisions in the bylaws to have a petition signed by at least 25% of the issued and outstanding shares to demand that an election be held. If they further refuse, residents can bring an action requesting the court to compel the scheduling and holding of the meeting. If residents feel the election was not proper, the BCL provides that upon the petition of any shareholder aggrieved by an election, the New York State Supreme Court can review the allegations and confirm the election, order a new election, or take such other action as the judge may require.”
“If a sitting board refuses to hold an election,” says Shapiro, “the residents should send a demand letter to the board to hold one. If the board doesn’t comply, it may be necessary to hire a lawyer—and possibly even to litigate. If it gets to that level, the board will likely wake up and smell the coffee.”
Cooper Smith is a staff writer/reporter for New England Condominium.
