UPDATING THE PROPRIETARY LEASE AND BYLAWS, P.2

13. Reimbursement of Lessor's Expenses

A lease should provide that the shareholder must reimburse the co-op for your legal fees after a default.

14. Lessee's Insurance

A lease should require shareholders to maintain apartment insurance.

15. Indemnity

If a shareholder uses a building employee for private work in the apartment, is the shareholder responsible if the employee is injured? If not, you could be.

Revising the Bylaws

1. Annual Meeting

Do the bylaws accurately reflect when the annual meeting should be held, or do they refer to a different part of the year because that was the date the sponsor used, which bears no relation to reality?

2. Inspectors of Elections

Do the bylaws require the appointment of an inspector? If so, do the bylaws also specify the position's duties?

3. Fixing of Record Date

Do the bylaws provide who has the right to vote the shares if the shares have been transferred before the meeting?

4. Voting by Two or More People

Do the bylaws indicate how the corporation should act if the shares are held in the name of more than a single shareholder and they disagree as to how to vote the shares?

5. Directors

Do the bylaws permit non-shareholders or shareholders in arrears to serve on the board? Can a shareholder and a spouse serve at the same time?

6. Nominations

Do the bylaws contain a mechanism for nominating directors, or is it haphazard?

7. Resignation

Can defaulting directors or directors who fail to attend meetings be removed, or do all removals require a vote of the shareholders?

8. Meetings

Can meetings be held by conference call, or only with physical presence?

9. Confidentiality

Do the bylaws limit what directors can say until the board agrees to release the information?

10. Conflicts of Interest

Do the bylaws describe conflicts by board members and provide mechanisms for dealing with them?

11. Indemnification

This is the single most important change that must be made. In 1988, the New York State Legislature amended the Business Corporation Law, increasing the indemnification available to board members to reduce lawsuits against them. If your bylaws do not contain the current language, your personal assets may be at risk.

Of the hundreds of pages of the offering plan for your apartment, only two documents have any significance to you: for a cooperative, the proprietary lease and bylaws; for a condominium, the declaration and bylaws. The rest is part of the sponsor's selling tool and has no relevance after the closing.

It is imperative that you make certain these two documents are updated to reflect all the changes that have occurred in the last 20 to 30 years.

Stuart Saft is a partner at Dewey & LeBoeuf.

Adapted from Habitat February 2007. For the complete article and more, join our Archive >>