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Who’s The Boss?

You are, if you’re on the board of your building.  Yes, I’ve taken to task over weaning board members who drink too deeply from the draught of power.  But just as problematic are those at the other extreme, who don’t drink deeply enough.

In any corporation, including co-ops (and by analogy condos), the ultimate authority should rest with the board. Management reports to it. But the practical reality is that in lots of buildings it’s the other way round – the management company tells the board what to do.

Here are a few recent examples of what can happen:

  • A newly elected board member at a large West Village co-op called to request a copy of the Management Agreement from their property manager, one of the largest in the City, and was told, “No.”
  • A director at another Downtown building asked that bank statements be provided with the monthly financials to be told by the management company that they are provided only to the Treasurer.
  • The board at a co-op on the Upper East Side only found out after the fact that its transfer agent had directed the corporation’s lawyer to prepare and send out agreements to a buyer who wanted to purchase an apartment in the name of a trust.
  • Directors at a Forest Hills building came home to learn that a long-time doorman had been terminated by management for getting into an altercation with a shareholder.
  • A new board member at a Rego Park co-op asked to see the invoices submitted by the building’s counsel for the past year, and was told by management that all requests had to be channeled through the President.

Why does this happen? Because boards allow it to, sometimes unwittingly, other times not. Since board members are volunteers, some figure the paid professionals know better.  Or they come from the automatic pilot school of management which teaches that the corporation will run itself. (Trust me, it doesn’t.) Or a new director is too intimidated to take on the very managers that it should be supervising.

If this is how your building is being run, which you may not even know, there is a problem because no one is in charge, at least not those who should be, a role reversal that can come back to haunt all of you. 

There are a few things your board can do to reorder the balance of power:

  • Remind the management company that it is the principal and they are the agent – translation: THE BOARD IS THE BOSS.
  • If that doesn’t work, tell them (which they should know) that under the law, directors have the absolute right to see any corporate records so they’d better turn them over, and not impose any conditions on doing so.
  • If the managing agent is retaining counsel (or any other professional) on their own, tell both parties that only the board is authorized to take such action, and that nothing can be sent out without board approval.
  • To be sure that management doesn’t fire anyone without the board knowing, which can result in significant potential liability if not done right, insist on a provision in the management agreement that board approval is required before anyone can be terminated – not standard in most agreements.
  • If management refuses to abide by any of the above, consider ending the relationship – sooner rather than later.
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