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Court Limits Sponsor’s Control Over Condo Board of Managers

In a recent decision, an appellate court enforced provisions of a condominium’s offering plan and by-laws in which the Sponsor agreed to relinquish control of the Board of Managers.  Tsui v. Chou, 2022 N.Y. App. Div. LEXIS 1932, 2022 N.Y. Slip Op. 2082 (1st Dep’t Mar. 24, 2022), 

            A condominium offering plan and the by-laws provided that after a certain period of time, the Sponsor would relinquish control over the Board of Managers.  A group of unit owners brought a lawsuit against the Sponsor, alleging that she had breached this requirement by having family members, including her husband and her daughter, run for seats on the Board of Managers.  (In this case, the Sponsor was an individual rather than an entity.)  After a trial, a lower court agreed with the plaintiffs and entered an injunction, effective for the next six elections, precluding the Sponsor and her family members from seeking more than two seats in any election for the six-member board.

On appeal, the appellate court upheld the injunction, because “a trial court is within its authority to grant relief prohibiting a sponsor from ‘frustrat[ing] its obligations under the offering plan … by transferring its shares to puppet entities to siphon votes away from resident shareholder candidates in order to control the board well beyond the period contemplated by the Attorney General.’”  The court found that the “limitation of allowing defendants to hold a maximum of two seats on the board for six elections simply enforces the bylaws, thus precluding the sponsor’s domination of the board.”  The court emphasized that the Sponsor and her family members remained free to vote for candidates of their choice in future elections, as long as they did not vote for candidates who would give the Sponsor control over the board.