Changes in Conflict of Interest Laws for Co-ops and CondosBy Darya Shneyder | November 1, 2017
Board members of cooperatives and condominiums in New York now have a new fiduciary duty to the shareholders of their respective corporations. In September 2017, the governor signed an amendment to the New York Business Corporation Law (BCL) establishing procedures for handling conflict of interest contracts. The addition of Section 727 identifies the changes in procedures related to contracts entered into with board members for cooperatives and condominiums formed under BCL.
Section 727 now requires board members to obtain and review a copy of Section 713 of BCL on an annual basis. Section 713 allows for contracts to exist between a board member and corporation, and states these agreements are not voidable simply due to related party relationship. This includes contracts that are made with a board member, an entity in which a board member has financial interest (investment), and/or an entity in which a board member holds a position that participates in the decision making process for that entity. However, Section 713 also identifies procedures the board must follow to approve the contract with the board member.
The new Section 727 amendment requires the boards of all New York cooperatives and condominiums to annually review contracts made between their board members and the corporation and disclose the information to all shareholders (i.e. related party contracts). The disclosure can be made in an annual report and must be signed by all board members. This annual report must include the following for each related party contract that was entered into that year:
- Contract recipient (related board member)
- Description of contract
- Purpose of contract
- Amount of contract
- Date of board meeting in which contract was reviewed
- Names of all board members present at the meeting
- Vote of each board member related to the contract
- Date when votes were recorded
- Contract expiration date
If no related party transactions occurred between a board member and the corporation during the year, an annual report must indicate that to the shareholders. Similarly, this report must also be signed by all board members.
What This Means for You
This change applies to all corporations formed under the New York Business Corporation Law or Non-profit Business Corporation Law. To ensure compliance with this amendment, boards should update their cooperative and condominium governing documents to include Section 727 procedures. See BCL Section 713 and Section 727 for further details.
About Darya Shneyder
Darya Shneyder, CPA, is a Partner in the Real Estate Group at Marks Paneth LLP. Ms. Shneyder specializes in providing accounting, auditing, tax and advisory services to commercial and residential real estate owners, developers and co-ops and condominiums. She also specializes in securing real estate tax reduction via certiorari audit filings. With more than 13 years of experience in public accounting, Ms. Shneyder’s background also includes audit and tax services for the manufacturing and distribution... READ MORE +