Transparency Troubles

Now sailing through the state’s general assembly is a new improved version of a new flawed law designed to rein in conflicts of interest among co-op and condo boards. Because of sloppy wording, the original law, which went into effect January 1 of this year, amended the Business Corporation Law and the Not-for-Profit Corporation Law, both of which govern co-ops. But it failed to amend the Real Property Law, which governs condominiums.

“I think whoever wrote the law did not know that condominiums are formed under the Real Property Law,” said attorney Stuart Saft, a partner at Holland & Knight, when his objections to the original bill fell on deaf ears last year in Albany. “We have to assume that...the law will be amended after the legislature realizes their mistake.”

That time has come. A new bill, sponsored by Assemblyman Steven Cymbrowitz, a Brooklyn Democrat, will amend the Real Property Law, requiring condo boards to do what co-op boards are already required to do – namely, to prepare an annual report that lists all contracts or transactions that were voted on by the board with an entity in which a director has a financial interest. The reports must be signed by all directors and include information on the amount and purpose of the contract, the recipient, a record of the meetings of the directors in which the contract was voted on – including attendance and how each director voted – plus the date of the vote and the effective date of the contract. The report must be distributed to all shareholders or unit-owners.

Cymbrowitz’s bill sailed through the assembly’s housing committee on a 23-0 vote in March and appears headed for Governor Andrew Cuomo’s signature. But uncertainty and misgivings remain.“Even if there was no transaction that involved an interested director, the board must still prepare a document signed by all directors stating that there was no applicable contract, then send it to all the shareholders,” Saft said late last year, after Cuomo had signed the original bill. “It’s unfair and another unnecessary cost. This legislation places an additional burden on boards and property managers who will have to do the work. It’s typical of the legislature’s disregard for New Yorkers who live in co-ops or condominiums.” Adds attorney James Glatthaar, a partner at Bleakley Platt & Schmidt: “One of the problems is, what is a contract? Does the board need to disclose that it failed to enter into a contract? If a realtor is a board member and is representing a party in an apartment sale, that’s something the law should cover – but may not. This new law just extends a poorly drafted law to cover more people.”