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The Invisible Man – Or Woman

iStock_000009076720XSmallThere’s nothing you can do if the sponsor doesn’t obey the rules because it’s exempt from most of them. (See: Having It All.) But what if its representative doesn’t come to board meetings?  Is there any recourse? You can bet if a resident director went AWOL, his fellow chieftains would hunt him down, and demand he show up or step down, and if he refused they’d kick him out at the next election.  Neither of these options is available if the invisible man is a sponsor director.

The sponsor initially has the right to appoint its own nominees to the board in a number proportionate to its ownership interest. So long as it holds a specified stake, the Super Jefe can continue to hold a board seat, and designate whoever it wants to sit in it. That doesn’t mean anyone actually will.

Absentee directors are a fact of life in lots of buildings, especially when the sponsor only retains a minority position. If the resident board members know what they’re doing and agree on what needs to get done, it may not matter.  In fact, they may prefer that the Super Jefe keeps its nose out of the building’s internal affairs. But as anyone who has lived in High Rise Society knows, lots of boards are more divided than united, and the sponsor’s vote may be necessary to break the logjam, just like V.P.’s does in the Senate.

Most sponsors don’t want to get embroiled in the sturm und drang that cleaves boards.  Since they don’t live in the building, they don’t really care if residents go to war over peeing dogs or noisy neighbors. And while they hope fellow tribesmen don’t kill one another other in the process, they’re not going to expend any blood or treasure on the cause.  Their interest is economic – not emotional.  Does whatever is going on threaten the value of their stake in the building?  If not, probably they’ll stay on the sidelines.

iStock_000010333799XSmallThis can be a real problem, not just because it may bring the board – and the building – to a grinding halt like the impasse that locked down our state’s legislature for a month and held us all hostage.  Sometimes the Super Jefe possesses unique information that can help resolve a problem, but if its director isn’t there no one will know.  Or there may be contentious topics on the agenda that can have legal ramifications for everyone on the board.

Although the sponsor gets lots of special privileges by virtue of its status, it does not get a free pass when it comes to the fiduciary duty it owes all of you. To the contrary, courts have found that sponsor-dominated condo and co-op boards owe you an extra-high standard of care.  They can get sued along with the resident chiefs, and given their greater knowledge it’s not inconceivable that those judges would look more critically at their action or inaction.  No matter, most sponsors opt to stay out of sight and above the fray, despite the possible consequences.

I’d like to offer up a neat solution for the new year, but there is none.  Cutting board meetings isn’t any more unlawful than cutting class, though one could argue that being permanently AWOL is itself a breach of duty owed to owners. Chances are no will know the sponsor’s playing hooky except the resident board members, who aren’t likely to snitch because doing so would expose their own fractious relationships.  The true state of affairs likely would only be revealed if someone decided to take legal action against the board, something sponsors are betting probably won’t happen because it’s too expensive for most regular folks to sue — even if they’re right.

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