Page 7 - New England Condominium February 2022

NEWENGLANDCONDO.COM
NEW ENGLAND CONDOMINIUM
-FEBRUARY 2022
7
agent’s firm or a brokerage company as of New York condominium associations must be signed by every board member.” company will do it, but may not disclose
well. “If a board member is the best snow are required to annually review and dis-
plow guy you can get and the price is com-
petitive, let him do it,” says Brooks. “As contracts between the board and interest-
long as it’s on the up-and-up. If he charges ed individual directors or managers. Such also goes a long way toward maintaining disclose it. This often happens with
a premium—well, that’s a problem.”
Hakim agrees, adding that “sometimes able solely because a board member has ity between boards and the residents they
it’s not clear whether there is a conflict—
or even if the board member does in
fact have a financial stake in the matter.
A contractor performing work for the
building who also happens to be a distant
relative of a board member may not
actually be a conflict, provided the board
member derives no financial benefit.”
A Matter of Optics
While boards and their advisors
should definitely be on the alert for actual
conflicts, the pros also stress that even the
appearance or perception of conflict can
be as toxic as the real thing. Hakim says
that while it may be perfectly okay to hire
a board member’s second cousin to re-tile
the lobby if that board member recuses
him- or herself from the decision-making
process around the project, “the optics in the decision to enter into it. Section owns another company that does, say, In all events, if the board member is not
often do not play well with concerned 713 sets forth what information about maintenance work, and they refer the removed, and the contract approved de-
shareholders and unit owners—so we the contract must be disclosed, and the self-owned subsidiary [for a project in spite the conflict, we would suggest that
often suggest disclosing that relationship process that a board must follow to ap-
prior to a vote to approve the company.”
Hakim explains. “Under Section 727 member, or to void the contract under dealing always looks bad.
of New York Business Corporation Law certain circumstances. It further requires
(BCL) amended in 2019, boards of direc-
tors of New York cooperative apartment has entered into any contracts with inter-
corporations and the boards of managers ested board members. The annual reports If no one else will do it, the management
close to shareholders and unit owners any sure around these contracts not only re-
contracts are not necessarily void or void-
an interest in the contract or participates serve.
prove a contract with an interested board that relationship to the community. Inside from future votes on the contract or is-
boards to disclose to owners if the board
A policy of full transparency and disclo-
duces the likelihood of self-dealing, but secondary to the fact the manager didn’t
an atmosphere of trust and accountabil-
Truth or Consequences
In addition to being thrown off the tion between residents and their board-
board, “if a board member breaches their management teams, because it goes hand
fiduciary duty, they can be sued for it,” says and hand with both a building’s finances,
Brooks. “You must disclose any potential and the trust that residents place in the
conflict. Don’t hide it—it will smell bad, people running the building. “It can eas-
and it will eventually blow up in your face. ily destroy the trust that the board mem-
Remember that when everything looks ber has earned,” says Hakim. “It can raise
good and there’s a job well done, no one questions about his or her ethics and dis-
cares. It’s when it goes the other way—and rupt the daily operations of the board. Le-
particularly when there is already unrest gally, the BCL permits a building to void
in a community—that it can be a political or approve a contract which is the subject
problem.”
Brooks says that conflicts can also member themself is not quite so easy—
become an issue between boards and the bylaws should be reviewed to see what
management companies. “It usually rights the owners or non-interested board
happens when a management company members have to remove such a member.
a client community] without disclosing the board member recuse him- or herself
“Conversely,”
Brooks
continues,
“boards often don’t understand that most member from voting. Owners who wish
outside vendors will not bid on a $150 job.
it. For a board, the fact that they couldn’t
find anyone else to do the job becomes
brokerage divisions as well.”
Undisclosed conflicts of interest,
when eventually disclosed or discovered,
can be one of the biggest bones of conten-
of the conflict. Dealing with the board
sue. Failure to do so may mean the board
has to take legal action to disqualify that
continued on page 8
“You must disclose
any potential
conflict. Don’t hide
it—it will smell
bad, and it will
eventually blow up
in your face.”
— Richard Brooks