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In Control

iStock_000002788949XSmallI get calls all the time from people saying their building has been co-op for 10 – 20 – even 30 – THIRTY YEARS – and the sponsor is still in control.  How is that possible, they ask incredulously.  Here’s how.

 The sponsor is the Super Jefe.  It can do pretty much what it wants.  It sets up the rules by which your regime is governed, but doesn’t have to follow most of them.  And it gets to appoint its own people to the board.  Assuming it starts out with control, it can designate a majority of directors.  You have no say in who it selects.

 Theoretically, the Super Jefe has to give up voting control the sooner of five years after the conversion or sale of more than 50 percent of the shares (or, in condos, common interests). (In newly constructed buildings, the sponsor must cede control the earlier of two years or less than 50 percent of the shares or common interests.) Except in reality it can stay in control A LOT LONGER.

One way is that it gets to vote twice. Even though you can’t vote for sponsor directors, it can vote for yours. So the Super Jefe can handpick its own nominees then vote its shares at board elections as long as the friendly candidates aren’t on its payroll.  That is, unless your building is lucky and has a “will not elect” clause in which the sponsor agrees not to elect a majority of the board.

3690202145_d87057c849Enough! The Super Jefe has been in control too long, owners finally decide.  We’re gonna take charge of our destiny and get rid of the whole lot of them. Except most bylaws say that sponsor directors only can be removed for cause, which is difficult and time consuming to prove. 

No problem.  We’ll remove all the resident sympathizers, leaving only one bad apple who will be minimalized into insignificance. Only, more likely, he’ll be maximalzed, not minimalized because most bylaws also say that any remaining director(s) can fill all vacant seats, which means the Super Jefe’s nominee can reappoint all the people you just removed.

 Just a minor hurdle, you’re probably saying if you’ve read The Co-op Bible, which explains that to avoid a pyrrhic victory you can amend the bylaws at the same time you remove the rascals, to provide that director vacancies created by shareholder vote also must be filled by shareholder vote.

champagne1-main_FullYou’re ready to uncork the champagne – until you realize the bylaws say that no amendment can be passed without the unanimous approval of all sponsor shares, which means you’re dead because a Super Jefe that’s gone this far is unlikely to agree to strip itself of the power to stack the board.

 The bottom line is that in many cases the sponsor not only can designate its own nominee(s), it also can vote its shares to elect residents sympathizers, and to top it off, can effectively prevent you from removing them. And that is how the Super Jefe can stay in control well past its five year expiration date.

If your building faces this Catch 22, rather than wasting your time trying to remove board members who can be reappointed, your best shot is to put aside petty grievances in the name of the greater good, and unite at the next election to vote in as many independent residents, and vote out as many sponsor puppets as you can.  Assuming you achieve a majority, the Super Jefe can be declawed if not done away with.  Trust me, I know this is not an easy task given the predilection most members of High Rise Society have to confrontitis. (See Deliver De Letter 12/15 /09) If by chance you are only now contemplating buying into a building, do yourself a favor and have your lawyer check out these provisions so at least you know what you may be getting into before it’s too late.

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One Response to “In Control”

  1. Dissident says:

    I’ve been trying to get on the board for years, but the sponsor and his guys have a lock. And the people on the board count the ballots. Is that kosher? This year we’re starting erly and putting together a slate.

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