An Update on New York’s New Interested Contracts Disclosure Law
We reported in the October and November 2017 issues of this Client Advisory on a new New York State law, which took effect on January 1, 2018. We noted at that time that based on the caption and background of the legislation, it was intended to apply to both cooperatives and condominiums. Due to a drafting error, the law actually applied only to cooperatives, as well as the handful of condominiums that are incorporated under the Business Corporation Law. The law as enacted did not apply to the vast majority of condominiums, which are created under a different state statute, the Real Property Law. However, it was anticipated that the Legislature would consider corrective legislation in 2018 to address this discrepancy.
In January 2018, the anticipated corrective legislation was introduced and passed the New York State Senate. The bill is now pending before the State Assembly. If enacted, the same provision that now requires cooperative boards to provide shareholders with a report each year, signed by each board member and giving information on contracts in which any board member has a financial interest, would also apply to condominiums. The requirement may apply to contracts approved by condominium boards retroactive to January 1, 2018, so condominium boards should be keeping track of all votes to approve any such contracts.
With respect to cooperatives, the law is already in effect. All cooperatives are now required to provide their board members, at least annually, with a copy of Business Corporation Law § 713 (or, for non-profit cooperatives, Not-for-Profit Corporation Law § 715), which governs board approval of contracts between the cooperative and a board member, or an entity in which a board member has a substantial financial interest. The first annual report listing such contracts approved by the board, or stating that no such contracts were approved if that was the case, must be provided to shareholders by December 31, 2018.
The corrective legislation as passed by the Senate and pending in the Assembly does not address other ambiguities in the legislation, including with regard to which specific contracts must be disclosed. Boards should therefore consult with their legal counsel regarding their obligations under the statute, well in advance of the date on which their first disclosure report is due.