Expiration Date Needed?

It’s one month away from the first day of spring, so that means boards and managing agents need to get busy, priming themselves for the annual meeting because, let’s face it, there’s no telling how it will go. Many times, the meeting can morph into a snooze fest, but if an angry shareholder shows up, board members may be in for a long, long night.

Getting ready means putting together a “to-do” list and checking it twice. Is the annual report ready? Is the meeting agenda written? Has the list of candidates up for election been compiled? Are you ready with your motion to institute term limits?

Caught you. Weren’t expecting that last one, were you? Well, depending on where you sit – with the shareholders or behind the table with the rest of the directors – term limits can seem like a good idea. But the question remains: is it the right idea for your building? Depending on the size of your co-op or condo, bringing in term limits is a good way to shake up the status quo, to make sure the bookkeeping is following generally acceptable accounting procedures, and to double-check that there is no favoritism in the building (i.e., letting directors have pets or allowing them to sublet or otherwise get away with infractions of the rules).

But surprisingly, many managing agents and boards believe such limits are more hindrance than help. What starts out as a good notion – bringing in new faces, new ideas, and new skills – can lead to management meltdown, with projects stalling, staff getting confused, and frustrations occurring as the new directors try to get up to speed on their responsibilities as board members and the pressing issues in the building.

Is there a way to negotiate through the potential problems involved in setting term limits? The experience at 9 East 96th Street may be instructive. Ten years ago, the 48-unit co-op board instituted term limits and staggered elections. In its first incarnation, board members were allowed to serve a pair of two-year terms before having to step down for at least a year before running again. About five years ago, the board extended term limits to three two-year terms. Then the problem became one of finding people interested in running for the board, reports the president, Timir Karia. When the limits were first enacted a decade ago, “my suspicion is that it was to remove a permanently entrenched board that ran the building as sort of a dictatorship. But those concerns have been mitigated. Now the discussion [of term limits] is framed around the lack of continuity it has on the board.”

The information flow from generation to generation gets interrupted when newer people replace very senior people. That problem is most evident in the area of budgeting, when a particularly well-versed director has to step aside for someone new. While the operations at 9 East 96th Street have never ground to a halt over the problem, there is always a learning curve, which can slow work down, points out Karia. That, and because “it’s difficult” to convince people to run for office.

Working with directors who want to serve, rather than those who have been dragooned because of term limits is much easier for managing agents, notes Andrea Bunis, president of Andrea Bunis Management. When a co-op institutes limits, “you’re forcing people out,” and sometimes ending up with people “who are not interested in being on the board,” says Bunis, who has been in situations where new members simply announce they aren’t interested in the job and quit, leaving vacancies that the co-op must scramble to fill.

“We don’t promote it,” Eric Lash, director of management at Alexander Wolf Management, notes about limits. Just recently, the company took over management of a co-op in Howard Beach, Brooklyn. The nine-member board had four directors step down this past October, including the president, vice president, secretary, and treasurer. Worried about continuity, Lash urged those members who weren’t yet at their limit to stay on. But they refused.

“We had a gap on the board in terms of having people to serve and a vacuum in terms of leadership. I was very anxious about that,” says Lash. So far, his worst fears have not come to pass – the building is operating smoothly – but there is no treasurer. That means the treasurer’s work is falling on the shoulders of the secretary, which is not fair.

Over at Castle Village, a co-op at 182nd Street in Manhattan, the board briefly considered term limits, but took a different route instead – staggered terms, to ensure that several people would always be serving who had a memory of what had happened in the co-op and why.

“Castle Village is a small city – it has 589 units and $8 or $9 million in operating funds – and governance requires knowledge of history. Without that you would have chaos,” points out Jerry Fingerhut, the co-op’s president and former treasurer.

The need for staggered elections became apparent two years ago when part of the retaining wall on the co-op grounds collapsed onto the West Side Highway (see “The Wall Came Tumbling Down,” Habitat, October 2006). For over a year, the co-op wrestled with bills and lawsuits from city agencies and their contractors.” It would have been an enormous distraction for the board members to run for reelection at the same time, so the board instituted staggered elections, in order to retain those members with experience. Given the enormity of the reconstruction project, it was “just the prudent thing to do,” says Fingerhut.

As a general rule of thumb, Morton Rosen, a partner in the law firm Rosen & Livingston, opposes the idea of term limits. There doesn’t seem to be any positive reason for having them, he explains, except for those ephemeral arguments that it produces more democratic results. And in my opinion, that’s a lot of crap. Serving on a board is difficult enough; there are all kinds of risks for board members – being sued, giving up personal time, and accepting abuse for a voluntary job. If someone wants to serve in that position, they shouldn’t be eliminated because of an artificial restriction.”

But it isn’t always a bad idea. Directors can get complacent, cooperators can be unwilling to run to replace an embedded board, and problems can fester, asserts Alvin Wasserman, director of Fairfield Property Services. In fact, if everything seems to be going along swimmingly, cooperators need to take another look.

“Sometimes you have someone [on the board] who is a benevolent leader, and you’d like him to stay on forever, but there’s a flip side,” says Wasserman. “For instance, [you can have] a board that boasts about not having raised monthly charges for 10 years, and after 10 years they learn they are broke.” So, at annual meeting time, instead of raising the maintenance two to three percent to make up for a shortfall, they have to institute a 25 percent increase.

“Those are scenarios we’ve seen a couple of times,” Wasserman notes.If there had been term limits, people might be on the board who would look at the situation with fresh eyes and say, “Wait a second, there’s something wrong here.”