One of the unique aspects of life in a co-op or condo is that a building or HOA is in many ways a microcosm of the larger world outside. It can suffer from the same factionalism and partisan bickering as any political entity, only on a much smaller, more intimate—and therefore potentially more damaging—scale. Conflict and divisions in co-op and condo communities can and often do bleed into the community’s administration: the manager and board of directors. Even a seemingly minor conflict can upend a residential community if it’s not dealt with diplomatically—so boards and managers must be prepared to step up, step in, and do their part to defuse such issues before they turn into something worse.
Michael Davidson is the president of BoardCoach.com, a Manhattan-based company that specializes in nonprofit board development and management support, including coaching. Davidson explains that board members of nonprofit entities (including co-ops and HOAs) have three main duties to which they must adhere: “The duty of care, the duty of loyalty, and the duty of obedience.”
With regard to the first, the duty of care, “Board members must basically understand what’s going on in terms of the building,” Davidson says, adding that their primary responsibility is to make sure the property is well and effectively managed.
The second duty, the duty of loyalty, “Requires adherence to conflict of interest obligations.” In simple terms, that means that a board member must put the co-op or condo’s welfare before their own. A good example would be that if your brother-in-law owns a roofing company, you shouldn’t recommend him for roof repairs to the building. In the more abstract sense, Davidson points out that adherence to this duty is less clearly defined in a co-op or condo than it may be in other not-for-profit organizations, because in a residential context, every board member presumably owns a unit or shares and may make decisions based on what may benefit them but not their neighbor.
“While co-op and condo boards represent nonprofit corporations and associations, they are, at their core, somewhat different from non-residential nonprofits,” he says, “because the board members are investors or owners in the nonprofit and their board positions carry a heavy fiduciary responsibility.” An example might be voting to permit Airbnb rentals. Doing so might provide a particular board member with additional income, but their neighbor(s) might not want strangers in the building. Both have vested interests, but those interests might not always align seamlessly.
The third duty incumbent upon board members—the duty of obedience—is of the most importance for co-op and condo board members. It calls upon them to understand, fairly enforce, and personally abide by the governing documents, policies, and protocols of their community. “The members of the board owe a duty to keep within the powers of the corporation and within those of the board of directors,” explains Davidson, adding that “The problem is that co-op boards are very different from other nonprofit boards in that everyone on the board has a personal interest in every issue. This makes them inherently more conflict-prone.”
When it comes to upholding these three administrative pillars, “Successful, functional boards need persons who work in tandem, work well as a team, are well organized, and have different areas of expertise to offer,” says Robert Silversmith of the New York City-based Silversmith & Associates Law Firm, PLLC. “Boards should openly and amicably communicate with all board members as a collective group.”
The Reality of Co-op Conflict
Howard Goldman is a partner with Goldman & Pease, a law firm located in Needham, Massachusetts that represents numerous condominium associations. “Yes,” he says. Factionalism happens. “There is a controlling group on the board, and those not in agreement feel out of control and frustrated. Often, those in these roles feel disenfranchised and that no one is listening to them.”
Goldman says there are two potential approaches to getting controlling board members to listen: One is to take a derivative action. The other is to remove and replace the board. A derivative action is essentially a lawsuit brought by a corporation shareholder against the directors, management and/or other shareholders of the corporation, usually for a failure by management. In the world of condominium ownership, a derivative action can be brought by an individual or group of shareholders to force the board to perform their fiduciary responsibility as outlined in the community’s governing documents.
A good example of how and why this approach is used would be when a board of directors doesn’t want to undertake a large or expensive project – extensive roof repairs, say – but the majority of unit owners want the work done. The derivative action would force the board to acquiesce to the community members, despite their own preferences.
Odd Numbers, Staggered Terms, and the Limits of Power
What happens when a minority of shareholders or unit owners controls the majority of board votes? How can that even happen? Many boards have staggered board service terms to provide continuity for management and supervision. So, what if there are seven seats and only three come up for election and the majority of shareholders or unit owners are unhappy with the existing board? They elect three new members—but voting control of the board stays with the four prior board members not subject to the current election cycle. Basically, they’re stuck till the next election.
“If shareholders are unhappy with what a board is doing,” says Andrew Freedland, an attorney with Anderson Kill, a law firm based in New York, “I have seen recall elections. Shareholders or unit owners can call a special meeting as provided in their bylaws. At that meeting board directors can be removed and replaced.” So it’s complicated, but it can be done.
Goldman says the same is true in Massachusetts. Condominium owners can call a meeting of the association and demand to hold new elections. They can air their grievances and hold a vote. If a majority of owners vote to remove the board a new election is held, and a new board is elected. Hopefully, the new board will be more amenable to listening to what the unit owners want.
Actions within the board itself are handled a little differently (and of course according to rules set forth in a given building or HOA’s governing documents). Freedland says he often gets questions from directors about removing other directors. And while the chain of events and emotions that would lead to that level of infighting might be complex, the answer to the question of board members giving a particular colleague the boot is straightforward: “Directors can’t remove other directors from a board,” says Freedland. “They can only be removed by shareholders. But they can remove a director from a specific position, say president or secretary.” So board members can make an officer a non-officer via a vote—but that doesn’t remove the board member from the board entirely.
Real Life Examples
“Conflict can happen because people just don’t jive,” says Michele Schlossberg, a property manager with Gumley Haft, a management firm in Manhattan. “They will nitpick each other. When you live in a condo or co-op, you have to realize you live in a community, and when people don’t it can become contentious.”
Schlossberg describes a situation in one community where there was a ‘coup’ on the board. A contingent of shareholders was unhappy with how the board had handled the planning and management of a large project to replace one of the building systems. A large group of shareholders didn’t feel they were being heard by the existing board, so they called for an election, collected a large number of proxies, and replaced three board members with new directors they felt would helm the project more effectively. The overall effect of the change, however, was to stymie the project even further. The new board members wanted to examine every document involved with the project to that point—then they announced they wanted to start the project over from scratch. It then took an additional three years—for a total of five—to complete a project that should have taken a year or two at most. So in that case at least, the infusion of new blood into the board had quite the opposite of the desired effect.
In another situation, Schlossberg recalls a board where the president was suspected of dishonest dealing. The rest of the board asked him to step down—but he refused. Ultimately, the co-op had to call a special meeting, and the president was removed from both his position and the board as a whole by a vote of the shareholders.
Davidson acknowledges that board environments can become combative. “Often there is friction,” he says. “ I suggest that co-op and condo boards consider adopting a method common in nonprofit organizations, which is the board member agreement.” A board member agreement is kind of like a rulebook and lays out what’s acceptable behavior for board members. “It should be in writing, and every new board member should be required to say they are prepared to agree to these rules,” says Davidson.
Michael Kim, a condominium attorney in Chicago, says that while board member agreements aren’t common among co-ops and condos in his particular area, he has occasionally seen them adopted in buildings or associations “when there are serious rival factions.” Kim does not necessarily encourage the use of such agreements, but he doesn’t discourage them either. As part of his practice, he will offer his client communities an orientation session for newly elected board members, including tutorials on how to run fair and orderly meetings. He says that bad blood between board members often has its origin in badly run, chaotic meetings where board members feel shut down, slighted, or otherwise insulted by their colleagues. Adopting specific meeting protocols (and sticking to them) is one way to nip acrimony in the bud before it has a chance to flourish and cause harm.
Another idea is that of a grievance committee—a common feature of non-residential nonprofits—tailored to a building or HOA’s board policy. Davidson explains that a grievance committee can perform an annual assessment of each board member. “Sort of like a, ‘how am I doing?’” he says. “The member meets privately with someone from the grievance committee every year to talk about their performance.” Such accountability and the opportunity to ‘check in’ in a calm, non-combative setting can help boards or residents course-correct before something relatively minor balloons into a bigger problem.
What Can a Manager Do?
Schlossberg suggests that the best way to handle conflicts among board members—or among warring resident factions—is to try to arrive at some sort of reconciliation between the two opposing groups, whether that’s in the community as a whole or on the board. “People want to be heard,” she says, and recommends that at the first board meeting after an election, it’s often very helpful to simply ask the minority what it is they want to see—what kind of changes they’re looking to effect by joining the board. It’s also crucial to understand what the shareholders want, and to remember that the board is there to govern everyone—not to champion pet projects or to stick it to anyone who doesn’t necessarily share one’s opinions or priorities. Put simply, “The goal is to create a cohesive board,” says Schlossberg, and the most important component of achieving that is a commitment to listen and take others’ concerns seriously.
Davidson shares a similar approach. “Identify solutions to each conflict,” he says. “Create rules for decision making. Then survey the board members. How do they rank the suggested solutions, ranging from ‘strongly agree’ to ‘strongly disagree’? Produce a summary of the results.” Davidson points out that in his experience, there is often nearly 100% agreement among board members, because solutions are usually pretty simple. “If there are disagreements,” he says, “hold a discussion. And importantly, acknowledge areas of conflict to work toward a common solution. Once you have rules of the road, you can manage conflict.”
Freedland concurs, summing up with the assertion that “Dissention shouldn’t permeate every issue. Work it out and get on with it.”
A J Sidransky is a staff writer/reporter with New England Condominium, and a published novelist.