Conflict-of-Interest Disclosure Law Now Applies to Condominium Boards as Well as Cooperatives
In prior issues of this Client Advisory, we reported on legislation enacted in 2017 which, among other things, requires cooperatives to provide their shareholders with an annual report on contracts approved by the Board in which one or more Board members is a party, giving rise to a conflict of interest. This new requirement initially did not apply to most condominiums, but on April 18, 2018, the Governor signed Chapter 9 of the Laws of 2018, which extends the disclosure requirement to condominium boards of managers, effective retroactively to January 1, 2018. Thus, both cooperatives and condominiums throughout New York State are now covered.
Many questions about the scope, application, and interpretation of the disclosure statute remain unanswered. William D. McCracken, a partner in Ganfer Shore Leeds & Zauderer, LLP, recently authored an article in the New York Real Property Law Journal, a publication of the New York State Bar Association, discussing some of these issues. A copy is enclosed with this newsletter.
The law’s extension to condominiums raises yet another unanswered question. Under the new law, condominiums must disclose all interested party transactions as defined in Section 713 of the New York Business Corporation Law (BCL) – even though the BCL ordinarily only applies to corporations (including cooperatives), not condominiums. Will condominiums now be required to follow the procedural requirements of this section (including its special voting rules and burdens of proof) when a conflict of interest arises? In any event, what is clear is that both cooperative and condominium boards will wish to discuss their new disclosure obligations with their legal counsel.