Members of condominium and co-op boards are often faced with conflicting interests and messages relating to matters of transparency and discretion. As a matter of good governance, transparency is always the preferred policy, whether you’re the president of your community board or the President of the United States.
That being said, in both cases there are times when good judgement means that discretion may be preferable to total candor and more critical than the membership’s or public’s right to know. The question for board members is how to recognize when discretion trumps transparency, and what the law requires with relation to both.
“Boards are elected as fiduciaries to manage their buildings,” says Mark Hakim, an attorney with the Manhattan-based law firm of Schwartz Sladkus Reich Greenberg Atlas. “While we always recommend that boards be as transparent as possible, we also recognize that there are both practical and legal reasons a board may not be as transparent as its residents want.” He explains that many circumstances warrant that boards be transparent and forthcoming with the owners or shareholders they have been elected to represent. If a large capital project is undertaken and problems arise, for example, the board should keep residents informed of the causes and ramifications. In this case, transparency is not only preferable; it’s necessary.
When it comes to proprietary information, though—things like the financial, personal, or health information of individual community members, for example—boards and board members must show the utmost discretion and respect for privacy. “Generally, boards can’t simply provide sensitive personal information on any of its residents to other residents,” Hakim says. “Personal and financial information must be protected. This is especially true in light of COVID-19, where boards should not be divulging medical information of a resident to the general public.”
“I believe transparency is the best policy,” says Scott Wolf, CEO of New England-based real estate management firm Brigs. “The more people know, the less they complain. COVID has actually increased transparency in some respects. We now have Zoom meetings for everything, so everyone can listen in. They can see and hear debate, and watch decisions being made. Boards are recording the meetings for full transparency.”
That said, Wolf continues, “with executive session meetings, where we discuss issues that require discretion like fines or arrearages, or COVID infection—things the board can’t talk about publicly—we go to private Zoom sessions. Boards and board members must show discretion, though, about what they say and do. Discretion should be shown with personal and financial info and situations and health issues, but otherwise transparency and more of it is a good thing.”
Wolf goes on to say that “now that owners are able to see what the board is doing, saying, and going through, we’ve seen an uptick in unit owner satisfaction with board action. COVID or no COVID, a better-informed ownership is less accusatory—and overall, that’s a good thing. We still have some difficult residents, but we can’t do anything about that. That’s the nature of the game.”
What Can You Talk About?
When it comes to transparency versus discretion, boards can sometimes feel that they’re walking a thin legal line. They’re not imagining things; the line is there, and it’s important that they understand where it is and how not to cross it. “Boards, together with their hired managing agents,” says Hakim, “are free to discuss amongst themselves just about anything, within the limits of the law, that relates to the operation, management, and best interests of the building, regardless of the sensitivity of the information.” That’s not the tricky part, however. “It’s what they do with that information that is often the issue,” Hakim continues. “No member of the board should be breaching their fiduciary obligation and divulging to third parties anything that is confidential in nature, whether it is the corporation’s or association’s business, or the sensitive personal information of a resident. Although courts now lean towards expanding a shareholder’s rights, under New York’s Business Corporation Law (often referred to as the BCL), shareholders are entitled to examine only the minutes of the proceedings of its shareholders, board, and executive committee. A disclosure by a board member of more than that, absent board approval, is a breach of his or her duties more expansive than what’s required by statute. It may even rise to the level of negligence. Any agent of the building who discloses more may also be subject to termination under their agreement with the building.”
That being said, Hakim does stress that there is no one-size-fits-all policy. “We recommend that individual boards find a balance of what works best for their particular building,” he says. “Limiting disclosures to only those required by law—usually just the minutes—may not be the best response to the effective and open governing the residents want. Private, sensitive information of a resident (e.g., medical condition, disabilities, personal family or financial information, etc.) should never be disseminated, but we feel that, within reason, boards should be as transparent as possible for many reasons—not the least of which is to avoid any claims of impropriety—without abandoning appropriate boundaries with regards to its information and governance. Buildings do not operate effectively when there are too many proverbial cooks in the kitchen.”
Wolf looks at the issue from a managerial perspective. “We have an agenda,” he says. “We finish operational topics first, then we announce to those attending on Zoom that we are going into executive session, and automatically sign the non-board residents out [of the virtual meeting room.] Zoom gives us that ability. During the executive session, we cover issues and topics that require discretion and privacy. There are also times in an open meeting when an owner may have an issue they want to discuss privately with the board; we can schedule a session for them and add them to the [otherwise closed] meeting—the same way we would have invited them to meet privately with the board in person before COVID. This protects their privacy.” Wolf notes that board members are made aware of what types of information are protected when they are elected, and that managers and association attorneys monitor what information is released, and why.
The Evolution of Privacy vs. Transparency
Privacy issues are not static, and never have been. Like most legal considerations, views have changed over time. “Courts have generally expanded what residents of co-ops and condominiums may now have access to,” says Hakim. “Basically, provided the person seeking the information executes an affidavit stating that the information is for legitimate corporate purposes, New York residents may now have access to almost anything related to their building, within reason. There is no law that requires dissemination of sensitive personal information of any resident, and there is legitimate corporate purpose for the same. We recommend that prior to opening the books to any resident, the managing agent and board ensure that anything that is sensitive or privileged be removed or redacted, to avoid claims of a breach of privacy and fiduciary duty, and possibly negligence. During COVID-19, boards may disclose the existence of the virus at the building, but should never disclose the infected person’s name and/or apartment number without that resident’s prior permission.”
From a more practical point of view, Wolf points out that “[a board’s] directors and officers (D&O) insurance policy should cover any problems arising from this. There is always human error and accident. But the board should also consult with their attorney. As long as they act in good faith, and with the best interest of the community in mind, they’re covered.” He adds that the actions of the board member would have to be something really egregious to get the board member in trouble in executing their fiduciary obligations, and it is the job of a good manager to catch something like that before it happens.
“A board member, or the board generally,” says Hakim, “could be in breach of its fiduciary obligations for any improper disclosure, and could see a resident assert a claim of negligence if any of the released information damages the resident, and/or is a breach of their privacy. We don’t wish to test whether the building’s D&O policy will cover the alleged breach—thus we err on the side of caution and advise boards not to disclose anything that even may be sensitive or private. If there is any doubt, let the court decide the issue if it goes that far—but we often find that court interaction is not necessary or requested after a discussion with the requesting parties or their counsel.”
In the end, how should board members handle persistent residents seeking proprietary information beyond what legal transparency suggests? “All they can do is be polite and firm,” says Wolf, “and rest on legal opinion and precedent. Tell them that the board has been advised that they can’t provide the documents, and advise the person asking for the information to contact the association’s attorney. But always keep it polite.”
A J Sidransky is a staff writer/reporter for New England Condominium, and a published novelist.