How Should Boards Handle the Reporting of a Crime?

A burglar slipped into a Hudson Heights co-op as a shareholder was leaving the building, then proceeded to steal a laundry cart and some packages. The theft was reported to police, but it took the co-op board almost two weeks to notify shareholders, and the notice downplayed the event and failed to give a full accounting of it. What is a board’s responsibility in reporting security breaches and crimes in their building?

“The board should have immediately advised the shareholders that it is trying to obtain information regarding this incident,” Lawrence Chaifetz, a Manhattan real estate lawyer, tells the Ask Real Estate column in the New York Times. The board should also assure residents that once an investigation is complete, it will inform them.

Boards and shareholders alike should remember that crimes committed by outsiders present very different challenges from crimes committed by board members, staffers, or shareholders.

In the case of the burglary, the board might be proceeding with caution because it wants to make sure that the information it provides is accurate and does not undermine a continuing investigation. However, by not communicating its motives, the board is making it hard for residents to feel confident in it.

Boards are protected by the Business Judgment Rule, which gives them wide latitude to perform their fiduciary duties without second-guessing by shareholders or the courts. But in a case like this, shareholders have a right to expect answers to a number of questions. Did the burglary expose vulnerabilities in the building’s security systems? What is the board doing to make sure the incident is not repeated?

Shareholders could circulate a petition calling for a special meeting to address their concerns, or for the right to attend the next board meeting. In the end if shareholders remain dissatisfied with the board’s actions or answers, there’s always the nuclear option: elect a new board.