Op-Ed: The Business Corporation Law Must Not Treat Co-ops Unequally
Fred Elkind
June 18, 2013 — As a business researcher / strategist and former condo board member I have been active for years in my 500-plus-unit co-op, serving on finance and elevator committees and as research consultant to committees and board presidents on issues we all face as shareholders. I want to raise an issue of concern to many of our shareholders and to others in our form of housing: the disproportionate power wielded by holders of unsold shares, and the unequal application of the New York State Business Corporation Law, depending on when a co-op's bylaws became effective.
There seem to be two interrelated issues of particular interest to co-op boards.
First, there is the unequal application of the Business Corporation Law (BCL),including the key Section 601, which governs rights of shareholders to amend bylaws ("bylaws may be adopted, amended or repealed by a majority of the votes cast by the shares at the time entitled to vote in the election of any directors"). It depends on the year the bylaws for the property were put into effect and the date the BCL amendments became law.
That would seem to (1) violate the equal protection clause of the 14th Amendment of the United States Constitution, and (2) violate the BCL's own "conflict of interest" clause, which states that when bylaws conflict with the BCL, the BCL prevails. Is it right, fair, or even legal that some shareholders can amend bylaws with a just simple majority, others with a supermajority, and still others, like my co-op, requiring every last shareholder, 100 percent, to agree?
Shares and Shares Alike?
The second interrelated issue is the vastly excessive power of the holders of unsold shares — even after their ownership drops to tiny portions of the co-op's ownership. In some cases, holders with but two-tenths of one percent of the shares are permitted to control two out of seven board seats, or 29 percent of the voting power. And some bylaw rules require unanimous consent of hundreds of shareholders to make any change whatsoever to create a more equitable playing field for the resident-shareholders.
These issues contrast with the long-standing policy trend of the New York State Legislature and government to empower shareholders to maximize control of co-ops by resident-shareholders. And we have been told for years by our co-op attorneys and boards that it was nearly impossible to change anything.
Since the attorney general and the Real Estate Finance Bureau are silent on what the law is regarding the application of the 1998 BCL amendments to pre-existing co-ops, New York needs to clarify this ambiguity regarding whether or not amendments to the BCL are the law of the land or apply unequally, benefiting only those where bylaws were more recently put into effect.
Since consumers are currently buying co-ops with older bylaws, should there then be a disclosure law to make buyers aware they will not enjoy the same legal rights enjoyed by newer co-ops? I think we need an answer.
Fred Elkind is a shareholder at Gerard Towers in Forest Hills, Queens.
Photo by Jennifer Wu
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