Concerns Regarding Non-Resident Board Members in a Cooperative
Q: I reside in a sizable cooperative in Lower Manhattan that is governed by a board consisting of nine members. Recently, one of the board members sold their apartment and relocated to another state, while a second member is currently living abroad with his family and subletting his apartment, claiming that he intends to return eventually. Despite these changes, both individuals continue to serve on the board of directors. I am concerned that their ability to act in the best interests of our cooperative may be compromised. Is this a legitimate concern? What steps can we take?
A: Under current law, there is no requirement for cooperative directors to be residents of the building or even shareholders. However, it’s essential to examine your cooperative’s governing documents, as they may stipulate specific qualifications and requirements for board members.
Begin by reviewing the bylaws. Do they permit individuals who do not reside in the building to serve on the board? Are there any stipulations that require shareholders who have sold their shares to vacate their board positions? It’s possible that the bylaws do not address these matters explicitly. If residency is indeed a requirement, shareholders may have the authority to request the resignation of any non-resident directors. Leni Morrison Cummins, chair of the condominiums and cooperatives practice at the law firm Cozen O’Connor, emphasizes this point.
This situation brings to light a broader concern that some cooperatives are currently facing: Are the board members acting in the best interests of the residents, or are they catering to investors? Over time, many cooperatives have allowed shareholders not only to maintain primary residences elsewhere or rent to subletters but also to acquire shares as investors. This practice has led to a division within cooperatives, creating distinct groups: resident shareholders and investor shareholders.
Resident shareholders typically prioritize improving their living conditions and maintaining restrictions on occupancy and subletting. In contrast, investor shareholders often seek to minimize costs and relax occupancy and subletting regulations. Shareholders do have the option to vote on establishing a residency requirement, but this may prove challenging in buildings with a significant investor presence.
If amending the bylaws to restrict board membership proves difficult, consider fostering a meaningful dialogue with the non-resident board members to express your concerns. Andrew I. Bart, senior counsel at Kagan Lubic Lepper Finkelstein & Gold, LLP, advises this approach.
Lastly, remember that your cooperative operates as a democracy, allowing you to engage actively in the upcoming elections. While campaigning and gathering proxies can require significant effort, William J. Geller, a lawyer with the firm Braverman Greenspun, notes that if you desire to shift the direction of the building, this can be a highly effective method to enact change.
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