Whenever a resident, board member or building owner gets frustrated by inaction or the process of wading through the bureaucratic red tape of board politics, it’s hard to know where to turn for a solution.
Hostility accomplishes little, however, and lawsuits are expensive; in matters of group living, diplomacy, mediation, and compromise are always preferable to bringing out the big guns and going to court.
“Lots of stuff just should not be litigated,” says Michael Horwitz, a principal with Horwitz & Zim Law Group, PC in Manhattan. “People shouldn’t have to run to court all the time for every little thing – more use should be made of mediation and binding arbitration.”
Even those less-litigious options might not even need to be explored if both board members and shareholder/owners are made aware of the primary state statute that spells out the finer points of running a fair, functional, and financially transparent building. That statute is New York State’s Business Corporation Law, or BCL.
Understand Your Governing DocumentsThe first step to understanding the intersections between board operations and shareholder/owner rights is to understand that the decisions a board makes are guided by a hierarchy of governing documents that includes the building’s Certificate of Incorporation, its proprietary lease, its house rules, and its bylaws. This interlinking web of papers and protocols must in turn comply with the BCL, which lays out the duties and responsibilities of directors and officers and outlines shareholder/owners’ rights to information and participation in the running of their building.
In today’s climate of corporate shadiness and financial mismanagement, practicing disclosure and fairness can foster open, productive communication between boards and residents and save both parties a lot of potential legal headaches – regardless of whether your building has 14 units or 414.
At a GlanceThe BCL, according to the state Attorney General’s office, is the main New York state law, which governs how co-op corporations must operate. The decisions made by courts in cases involving BCL provisions are the case law, which interprets the statute.
Typically, the bylaws and proprietary lease will let residents and board members know when annual shareholder meetings and elections to the board of directors are held, and how notice is given; the rules governing sponsors and how many seats they may be allotted on the board of directors; when a special meeting can be called; the specific procedures for amending the bylaws; the quorum for voting and holding a proper meeting; and sublet provisions. The BCL also spells out provisions for holding annual meetings; voting by proxy; allowing shareholders the right to view copies of balance and loss statements and other financial documents; and removing directors with or without cause.
The BCL, as should the co-op’s governing documents, require that at least one annual shareholder meeting should be conducted, even if no one complains. Even if the residents of a small co-op opt to re-elect the same handful of directors year after year, the law is satisfied. According to Horwitz, regular meetings and votes are crucial: “When you’ve got people who’ve spent millions on an apartment, they should have a say – or at the very least, an opportunity to be heard.”
And residents should protect their interest by using a proxy, according to Marc Schneider, of counsel to the law firm of Rosenberg & Fortuna, LLP in Garden City. “You can give a proxy to anybody to vote your interest – though it’s usually better to designate another unit-owner. The original proxy form must be submitted to the manager prior to the vote, or presented to the board at the meeting before the vote is taken.”
The board is also responsible to keep and maintain an updated master list of all shareholders’ names and addresses. According to Horwitz, a co-op board is no different from the board of a regular corporation. “Shareholders are entitled to a list because they’re shareholders,” he says. “If residents are concerned about privacy and security, affidavits can be drawn up to protect their privacy.”
Keeping MinutesIt’s also a board’s responsibility to keep accurate, complete minutes of shareholder meetings, which, under BCL Section 624, boards must “make available for inspection by a shareholder or the shareholder’s agent or attorney.” It’s important to realize, however, that there’s a distinction between shareholder meetings and board meetings; while records of shareholder meetings must be kept and disclosed, the BCL makes no such requirement for the minutes taken during closed board meetings. However, this does not prevent the co-op’s bylaws from requiring such minutes. More often than not, board meeting minutes taken behind closed doors must be subpoenaed by a judge in the event of a lawsuit.
“Everyone’s scared to death of litigation,” says Horwitz. “I’ve seen minutes get shorter and shorter, to where they consist of a single line – “˜approved buyer so-and-so’, for example. It’s understandable, but communication is then a real difficulty – and it’s a disservice to shareholders.”
Bad BoardsThe BCL also provides for removal of an inefficient or inept board of directors. But, of course, things have to deteriorate pretty badly before full-blown litigation or the removal of an entire board becomes a serious consideration. Any reputable attorney will nearly always advise diplomacy and mediation before recommending that a suit be filed.
Schneider urges disgruntled shareholders to remember that “boards have to abide by bylaws, and the BCL, but they don’t have to do everything you ask. Make sure you’re familiar with your lease, your bylaws, Offering Plan, and house rules before you start firing off letters – and make sure your request is reasonable and proper.”
But say a shareholder hasn’t been notified of an election in three years, or that nobody in a given building has any idea what kind of financial shape their co-op or condo is really in – what’s the first step in rectifying the information gaps and seeing to it that the board isn’t operating in a sealed environment? New York State Attorney General Elliot Spitzer’s office recommends the simplest approach first: a tactful verbal mention of a board’s non-compliance with its bylaws, proprietary lease, the BCL or other governing documents is often enough to do the trick – sometimes the problem is lack of awareness on behalf of the board, and the directors simply need a well-intentioned wake-up call.
Failing that, Schneider recommends that concerned shareholders should always put their grievances in writing and deliver them not to the board, but to their managing agent via registered or certified mail. Once the agent has the document in hand, he or she will present it at the next board meeting.
“Most boards meet once a month or so,” says Schneider, “so give them 30 to 60 days to respond – unless your issue is urgent in nature. If you’re injured and need a ramp installed so you can access your building, then set forth that urgency in your letter, and the board must address it in a timely manner.”
If the issue is one that impacts more than just one or two residents, united shareholder/owners can lobby for reform as a bloc, or band together to vote in new, more progressive directors at the next annual election.
Schneider also points out that if a coalition of residents requests a meeting, they must also specifically call for a vote at the same time, or the board can “just sit there, thank everyone for coming, and go home” without taking action.
If a building-related issue goes beyond the friendly-conversation phase, it’s a good idea to keep copies of any letters sent – as well as records of phone conversations – with the date, time, involved parties, and general thrust of the communication spelled out, in case the issue isn’t dealt with immediately and past efforts to correct it need to be referenced.
Only after talking, writing, and mediating have failed to produce results should anyone consider retaining private legal counsel and launching a lawsuit, says the Attorney General’s office. The reasons for this are obvious: lawsuits are expensive, they can drag on for years, and they can make for a very uncomfortable – even hostile – living environment for both plaintiffs and defendants. Far better for directors and shareholders to avoid them in the first place by familiarizing themselves with their bylaws and offering plan, and for shareholder/owners to take a productive, cooperative role in the governing of their residential community.
“In this climate of corporate fraud and irresponsibility,” says Horwitz, “There’s a need for transparency [with boards]. Otherwise, you’re living in a dictatorship.”
Hannah Fons is Associate Editor of The Cooperator.
Every homeowners association requires a set of rules to serve as a guide for their board elections. But, coming up with these exact HOA board election rules can come as a challenge.
Creating Your Own HOA Board Election Rules
The law requires homeowners associations to have and follow a set of election rules. You will typically find general rules within your governing documents, specifically the community bylaws. But, you also need more specific HOA board election rules to serve as a guide for your association. These rules are then considered part of your operating rules.
A lack of election rules could put your association at risk of potential liability. Additionally, failure to follow these rules can result in the overturning of your actions as an HOA board.
It is important to know that there is no standard set of rules for every association. These rules can vary, and each association requires its own collection of HOA board election rules. When drafting your rules, make sure to check your state laws and governing documents to ensure no conflict arises. It is best to have your HOA attorney oversee the creation or amendment of these rules.
Furthermore, since election rules are deemed part of your operating rules, the board typically does not need approval from the membership to create or amend them. Still, the board is bound by certain requirements laid out in state laws and the governing documents.
For instance, if you need to change the rules, you must notify homeowners of the proposed change ahead of time. The notice requirement will vary from association to association. In California, for example, HOA boards must provide 28 days’ notice of a rule change prior to making it.
What to Include in Your HOA Board Election Rules
No two associations are the same. The rules of one association may vastly differ from another’s. Yet, there are some general rules for the HOA election process that all associations will benefit from. If you need help creating or amending your HOA voting rules, here are the points you should consider adopting:
Your HOA board election rules should establish candidate qualifications. One of the most obvious and mandatory qualifications, of course, is that the candidate must be a member of the association at the time of their nomination. Some associations even go as far as requiring candidates to have been a resident for at least a year. There are also others that disqualify candidates if they have any unpaid dues.
Other reasonable qualifications to become a director include but are not limited to:
- No current violations of the governing documents
- Not involved in legal issues with the HOA
- Not related to any existing board member
- No past felony convictions
The election rules must also indicate the candidate nomination procedures. These procedures can include:
- Floor Nominations. Though generally not required by law, your governing documents may allow floor nominations. These take place during the meeting after a quorum has been established. Once the president opens the floor for candidate nominations, members in good standing can nominate other members and no second is necessary.
- Write-In Candidates. Depending on state laws and your governing documents, you may allow write-in candidates. California, for instance, allows associations to permit write-ins unless their governing documents say otherwise.
- Self-Nominations. Associations generally can’t prohibit members from nominating themselves as candidates. Though, they must still meet the candidate qualifications.
Equal Access to Association Media
Campaigning is often difficult without the media resources of the association. As such, you should consider providing candidates access to association media during HOA elections. If you grant access to one candidate, though, you must grant access to all candidates for fairness. Association media can include HOA websites, newsletters, and the like.
Should candidates use association media, you may not edit or remove any content from their campaign materials. But, you may include a disclaimer stating that the association is not responsible for the content and that responsibility rests upon the candidate alone.
Equal Access to Common Areas
Candidates may also need to use common areas and meeting spaces within the association for campaigning purposes. In that case, you must include a rule that allows all candidates equal access to these areas and spaces. Your HOA must not charge the candidates to use these spaces as well.
As part of your HOA or condo voting rules, you must indicate voting qualifications. Explain the voting power of each association member as well as the validity of their vote. You must also describe the effect of proxies if your HOA uses them. Other than that, your HOA board election rules should clearly state the period for voting. This includes the start and end dates as well as the opening and closing times of the polls.
Not all state laws may require election inspectors, but some do. In the case of California, associations must have an inspector of the elections when using secret ballots. The HOA election rules must define how election inspectors are chosen. The board can appoint the inspector, have members elect the inspector, or adopt other means of selecting the inspector.
The inspector/s of the election must then have the ability to appoint additional persons to count the votes and authenticate signatures. But, to do so, the inspector/s must be an independent third party.
Voter List and Candidate List Accuracy
Your association’s board election rules must mandate the retention of a voter list and a candidate registration list. The HOA must then allow members to check their individual information for accuracy prior to the distribution of the ballots. The exact period will depend on state laws and the association’s governing documents. For instance, in California, the HOA must allow members to verify the accuracy of their information at least 30 days prior and report any discrepancies within 2 business days.
The voter list must include the following details:
- Voting power
- Separate interest’s physical address
- Parcel number
- Mailing address for the ballot
Ballot and Rule Delivery
Associations must not deny any member of a ballot. If they own a separate interest in the HOA, then you must allow them a ballot and count their vote (provided they submitted the ballot on or before the deadline). The same goes for a person with a general power of attorney for a member.
Download your free editable voting ballot here.
Your election rules should also require the election inspector to deliver the ballots as well as a copy of the HOA board election rules prior to the election (at least 30 days in California). Ideally, the delivery method used shall be individual delivery accomplished via postal mail.
Can an HOA Endorse a Candidate?
During the election period, it may become clear to you that a particular candidate is best suited for the job. But, you must never endorse a specific candidate for a position on the board.
To ensure a fair election process, you must remain a neutral HOA board. That means exhibiting no personal bias or favoritism, even if it is glaringly obvious to you that one candidate stands out from the rest. You must allow homeowners to form their own opinions and simply trust in their good judgment.
Similarly, you should never speak ill of any candidate. Keep your thoughts to yourself even when asked by a member. But, that does not mean you can’t respectfully correct a candidate if they provide false information. Just remember not to criticize them or go after their character.
These points don’t just apply offline, though. Never badmouth or endorse a candidate on your social media pages or through other online communication channels. If a member posts on their Facebook page that they are voting for a particular candidate, refrain from liking or commenting on the post, too. That can be misconstrued as an endorsement.
HOA Boards Need Help, Too
HOA board election rules are essential if you want to hold fair and smooth elections. These rules tell you what you can and can’t do come election time, allowing for a standardized and consistent procedure every time. Adopting and enforcing these rules, though, can be difficult without professional help.
The road to hiring the best HOA management company begins with us. Using our online directory, you can start looking for the best one in your area today.