Keep Detailed Records

Smith, Buss & Jacobs
Kenneth R. Jacobs, Partner

A 40-year-old cooperative had a 10 percent sublease fee in place for over 30 years. One new shareholder, now subleasing to a high-paying tenant, challenged the propriety of the sublease fee in court. Among other things, he claimed that the cooperative could impose a fee of that size only through an amendment to the proprietary lease, but that the lease had never been amended.

The cooperative had a spotty history of keeping records of resolutions, amendments, and other corporate actions. It took an amazing effort, requiring shareholders to locate and reconstruct generations of minutes, memoranda, and voting records from their personal files, to demonstrate that an amendment had been properly passed.

Another cooperative passed a resolution several years ago grandfathering existing clothes washers but prohibiting the installation of new washers. Unfortunately, the cooperative never verified in writing who had a washer at the time the resolution was passed. Some shareholders subsequently installed washers and claimed that they should be grandfathered as well. The cooperative has had considerable difficulty rebutting their claim.

In contrast, a 30-year-old condominium recorded amendments its bylaws in 2001. In 2012 certain aggrieved unit-owners with selective memories questioned whether the bylaws had been properly presented for a vote.

Fortunately, this condominium had kept the same managing agent for 11 years, and the agent had a strong record-keeping system. The board was able to produce the notices of meeting, voting records and minutes from 2001 ratifying the vote of the unit-owners.

Legal Lesson

Co-ops and condos frequently run informal operations with a collective memory based on tradition. However, many associations now have decades of history and substantial turnover. New members justifiably question policies that seem to favor existing owners, or cost them more money, and unless the board can show where these policies originated they may be liable for unauthorized charges or forced to change long-standing rules. Boards should make it a point to (a) keep accurate minutes reflecting resolutions that will affect owners; (b) keep copies of records of member meetings and votes in their minute books; (c) maintain and distribute accurate, updated copies of their rules and regulations, bylaws, and proprietary lease (for co-ops); and (d) remember to record amendments to their bylaws or declaration (for condos).