September 20, 2017
Real Estate Alert
Real Estate Alert
Recently, New York legislated amendments to its Business Corporation Law and Not-For-Profit Corporation Law which establish procedures for boards of condominium and cooperative corporations to handle certain conflicts of interest. This alert discusses what owners, developers and shareholders need to know.
On September 12, 2017, the governor signed into law new amendments to the New York Business Corporation Law (the BCL) and the New York Not-For-Profit Corporation Law (the NPCL), which establish procedures for boards of condominium and cooperative corporations to handle certain conflicts of interest. Now, boards of condominium and cooperative corporations are required to provide each director with the conflict of interest section of the applicable law and submit an annual report to its members or shareholders regarding related party transactions.
The purpose of this legislation, according to the New York State Assembly Memorandum in Support of Legislation, is to ensure that cooperative and condominium housing boards of directors are aware of certain laws relating to conflicts of interest. It also establishes a notification requirement so that the members or shareholders are aware of transactions involving an interested director.
The new legislation on its face only impacts certain condominium and cooperative boards.
The explicit language of the new law applies only to those condominium and cooperative corporations formed pursuant to either the BCL or the NPCL, which appears to leave out most condominiums that are unincorporated associations formed pursuant to Article 9-B of the New York Real Property Law, known as the Condominium Act. Moreover, the law is completely silent on enforcement and oversight, which leads one to believe that any violations of the law must be addressed by shareholders or members through litigation.
All cooperatives or condominiums formed pursuant to either the BCL or the NPCL may wish to consider amending their governing documents to ensure they are compliant with the new legislation. Such amendments should establish a procedure to provide each director a copy of the applicable statute and track when the annual reports will be circulated. For sponsors of cooperative or applicable condominium offerings, especially during such time that the sponsor controls the board of directors or board of managers, a question arises as to whether this information must also be included in an amendment to the offering plan, or if providing a separate report suffices.
Nixon Peabody’s team of cooperative and condominium attorneys will continue to monitor any updates on this new law, paying particular attention to any new requirements applicable to sponsors.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.