Co-op Boards Should Shun Any Appearance of a Conflict of Interest
Jan. 13, 2023 — A lawyer on the co-op board serving as sellers' rep is a bad idea.
Q: The president of my co-op board is a real estate lawyer and frequently represents shareholders when they sell their apartments in the building. He says he recuses himself when buyers for his clients go through the board approval process. When I bought my unit, he represented the sellers, and when I came before the board, he was there to ask me questions. Is this legal?
A: A co-op board president can legally work as a lawyer for shareholders selling their units in the building, replies the Ask Real Estate column in The New York Times. But just because something is legal doesn’t make it a good idea. This arrangement leads, at the very least, to the appearance of conflicted loyalties. And in the world of co-ops, appearances matter.
What's objectionable in these situations is "the image of impropriety,” says Julie Schechter, a partner in the law firm Armstrong Teasdale. Sellers might choose to hire him over another lawyer because they think he’ll give their buyers a leg up during the board approval process, even if that isn’t true. “Whether he’s actually giving you an advantage or not, it’s giving off the perception that he can. And you never want that.”
Even if the board president does recuse himself from the application process, the arrangement is still problematic. A board member has a fiduciary duty to the co-op; but as a lawyer, he has obligations to his client. And those two responsibilities might not always align. Let’s say the seller renovated a bathroom without informing the board or getting the proper permits, and they tell their lawyer about it. “Now you have a problem as a board president because you know that there was an illegal alteration that was done in the building,” Schechter says. “And so where is your loyalty?”
You could write the board a letter laying out your concerns, but that might not do much. “It’s like scolding someone who’s doing something naughty,” Schechter says. “If they’re knowingly doing this, they’re probably not going to respond.”
Another option: Run for a seat on the board, or find an ally in the building who will. Spend the months ahead of the board election drumming up support for your cause, arguing that you’re running on a platform of ethical leadership. This would require a large commitment on your part, but it might help change the culture of the board. And it will give off the right kind of appearances.