How can I tell if a co-op or condo board member has a conflict of interest—and what can I do about it?
Co-op and condo board politics can get heated, but actual conflicts of interest are few and far between.
“There’s a conflict of interest when, and only when, a board member has a pecuniary interest in the issue on which the board has to decide,” says real estate attorney Ian Brandt, a partner at the Manhattan law firm Wagner Berkow & Brandt.
A pecuniary interest might involve a board member who is a broker in an apartment sale in the building. That would represent a conflict because they have a financial stake in the deal where the board is deciding if someone is a viable candidate.
Brandt says that in this situation, the board member should recuse themselves from voting on the issue but points out, “the only statute on this is in the Business Corporation Law and the statute is permissive, not proscriptive. The law requires board members to disclose all personal pecuniary interests, opening the possibility that if you disclose the interest, you may no longer be conflicted.”
Another example might be a board member voting on an issue directly related to their specific apartment, like an alteration package, sublease, or transfer request.
“It’s possible that someone can get away with voting on an issue where they have a pecuniary interest, but in these circumstances, as a general rule, board members should recuse themselves,” says Brandt.
However, he points out, disqualification or recusal is just for voting purposes. “All board members have the unqualified right of access to all corporate materials and communications. If the board member wants to gather information or talk to people about any problem in the building, nothing is stopping them from doing that,” says Brandt.
Conflict of interest is not a purity test
Some people assume that a board member’s involvement in a dispute creates a conflict of interest, but Brandt says that’s not the case.
“Board members should not be disenfranchised from voting just because they were involved in some messy building matter. The law disfavors disenfranchising anyone, especially someone who is an elected fiduciary to a corporation—so board members who are being bullied out of voting, which often happens, may have legal recourse,” he says.
As an example, if a board member gets into a disagreement on a building issue with their neighbor and is asked to recuse themselves from the neighbor’s sublease application, Brandt says there is no legal basis for that recusal request.
“This is not a purity test. If a board member is ousted from a vote because other members feel she was entangled personally or emotionally in the matter, I would recommend that she assert her rights and start action for an injunction and declaratory relief in the Supreme Court to compel the board to allow her to vote in the matter and gather all the information and participate equally like every other board member.”
Establishing a pecuniary interest
Sometimes it’s not clear whether a board member has a financial interest in the issue at hand. If that’s the case, an attorney can get involved and do an investigation, interview the accused board member, and ask them to turn over any corporate papers evidencing their financial stake in the matter.
An example might be that the board wants to hire a construction or roofing company and a member is thought to have a financial interest in one of the firms.
“In this situation, I’d ask the company that’s bidding for the work to turn over papers to show the interest of the people who own it. This would determine whether the board member is actually an owner. If a vendor is bidding to do a roof replacement you can ask who the partners are in the company,” says Brandt.
“If there is a financial stake and the board member still won’t recuse themselves, the board may be able to start legal action to disqualify them from the vote,” he says.
New York City real estate attorney Bonnie Reid Berkow is a founding partner of Wagner, Berkow & Brandt with more than 30 years of experience litigating in state and federal courts in New York state, including cases involving breach of contract, fraud and breach of fiduciary duty, in addition to real estate disputes and commercial actions. To submit a question for this column, click here. To ask about a legal consultation, send an email or call (646) 780-7272.
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