More Information On New Legislation Concerning Boards’ Reporting To Shareholders On Contracts
We reported last month on a new New York State law, which will take effect on January 1, 2018, requiring cooperative boards to report to their shareholders annually on certain contracts approved by the board. Here is some additional information on this new law.
Section 713 of the New York Business Corporation Law governs transactions in which a corporation (including a cooperative) contracts with a director of the corporation, or with a company in which a director has a substantial financial interest. Under the new law, every cooperative must provide each of its directors with a copy of Section 713, which sets forth special requirements for board approval of any such transaction.
The board of directors will also be required to report to the shareholders annually on certain contracts that the board has approved during the past year. As there is some ambiguity in the wording of the legislation, boards should consult with their legal counsel to determine which contracts they are required to list in their report. If there are no contracts on which the Board is required to provide information, the report must state that fact.
For each contract reported, the report must identify the other contracting party and set for the the amount, purpose, and term of the contract. The report must also record the dates of all board meetings at which the board voted on such contracts, including who was present and how each director voted. This annual report must be signed by all members of the board (not just the board president or a managing agent). The statute does not state whether this requires a physical signature or whether an authorized electronic signature is sufficient. The new statute does not contain any specific enforcement provisions or penalties for violations of the reporting requirements, but a shareholder may use any violation to support claims under existing law.
As previously noted, the new law as enacted covers only entities that are organized as corporations. This would include cooperatives but would not include most condominiums, which are organized as unincorporated associations. However, there have been reports that the Governor’s office is supporting proposed corrective legislation that would expand the new law to include condominiums. Any such legislation might also address other ambiguities that in the law as it currently stands. We will report on any further developments in a future issue of this Client Advisory.
BOARDS MUST NOW ADOPT SMOKING POLICIES
A New York City local law that will take effect on August 28, 2018 requires that all cooperatives and condominiums adopt a written policy on smoking and must incorporate that policy into the By-Laws or House Rules. The policy must address smoking in all indoor areas of the building, including common areas and individual apartments or dwelling units, as well as outdoor areas such as courtyards, terraces or balconies, and rooftops. The policy must apply to residents, guests, and any other persons who may be on the premises.
Existing New York City law already prohibits smoking in public places such as the common areas of cooperatives or condominiums. This restriction on smoking in common areas, which presently applies only to buildings with ten or more dwelling units, will now include all buildings regardless of the number of dwelling units. Thus, a cooperative’s or condominium’s smoking policy will necessarily reflect that smoking is prohibited in these areas.
The new law states that one of its purposes is to encourage buildings to adopt smoke-free policies. Thus, a cooperative or condominium may seek to use the requirement of developing a policy as an opportunity to prohibit or restrict smoking inside individual apartments. Adopting a prohibition on smoking in apartments ordinarily requires amending the By-Laws and/or the Proprietary Lease, which typically require shareholder approval and often by a supermajority vote.
The law also provides that newly adopted restrictions on smoking inside apartments will not be binding on existing tenants during the term of their lease, unless otherwise provided in the lease. This language may require cooperatives (but not condominiums) to apply in-apartment smoking bans to new residents only, unless the proprietary lease is among the documents amended.
There is no requirement that a building must prohibit smoking inside apartments. A building may provide in its policy that smoking within apartments is permitted. It may be desirable to include a cross-reference in the policy to existing Proprietary Lease provisions and House Rules prohibiting noxious odors or conduct that interferes with other residents’ use and enjoyment of their own apartments.
Once the new smoking policy has been adopted, a copy must be distributed to all shareholders or unit owners, or posted in the building. The policy must also be disclosed and incorporated in the contract of sale or lease whenever a shareholder or unit owner sells or leases a unit. Finally, the new law also clarifies that effective February 28, 2018, electronic cigarettes are subject to the same prohibitions on smoking in public places as ordinary cigarettes.
UPDATED BEDBUG DISCLOSURE REQUIREMENTS
Another New York City Local Law adopted earlier this year requires owners of multiple dwellings, including cooperatives and condominiums, to report to the Department of Housing Preservation and Development (HPD) annually on bedbug infestations in dwelling units within the past year. To obtain information for reporting, building owners are required to request each tenant or owner within the building to provide any bedbug infestation history for the previous year, including whether there were any infestations and whether eradication methods were used. The report will be filed electronically on a form provided by HPD. Copies of the report must either be provided directly to all tenants within the building or posted in a prominent location.
FIRE DEPARTMENT REQUIRES SIGNS ON DOORS
The New York City Fire Department has adopted rules requiring multiple dwellings to be equipped with reflective signs on all apartment and stairwell doors and in corridors. The signs will provide information such as apartment numbers in a uniform format to assist firefighters and other emergency personnel in the event of a fire. The signs will be mounted within 12 inches of the floor and there are detailed requirements concerning their location, size, and number. Buildings that are fully sprinklered may be exempt from compliance. The new sign requirement is already in effect for buildings containing duplex or triplex units and will take effect on March 30, 2018 for buildings with only single-level units.