There is a natural inclination in business to work with those whom you know and trust. Relying on relationships that have developed over time is just a common-sense way to ensure a fair deal from a competent vendor who will perform their job with minimal fuss. But, when an individual board member stands to profit in any way from hiring a particular vendor, and fails to disclose that relationship, then you’re talking about a potential conflict of interest, which is decidedly less kosher.
Individual states have assorted rules and regulations designed to prevent self-dealing in co-op, condo and HOA settings, and to ensure that association business stays on the up-and-up for the benefit of every owner or shareholder, rather than specific individuals. In New York, for example, there is the Business Corporation Law (BCL), under which most cooperatives in the state were created. New additions to the BCL went into effect on January 1st of this year, and as such, it’s worth taking another look at the law, similar legislation in other states – including New Jersey – and conflict of interest in general.
(Hopefully Not) Dirty Jersey
According to attorney John J. Roman, Jr., a partner with Hubschman & Roman, P.C., in Palisades Park, New Jersey, co-ops are a rarity in the state, with the majority concentrated in the Fort Lee area of Bergen County. As such, the laws governing condominiums are usually more pertinent when considering conflicts of interest.
“There is very little legislation in the state of New Jersey that governs cooperatives,” says Roman. “The only thing I can think of off-hand is the Cooperative Recording Act for new cooperatives that were formed after the legislation was enacted, which was back in 1987. And I don’t imagine that many cooperatives were formed after that date.
“Therefore, anything that’s going to control conflicts of interests in co-ops or condos would be within the Not-For-Profit Corporation Act – which I would assume is similar in nature to BCL in New York, and contains some provisions about disclosure for interested directors – or the New Jersey Condo Act,” he continues. “My advice to boards would be to avoid taking interest in referring out any business unless it’s been fully disclosed, at which point you must recuse yourself from voting on any issue wherein you’d have some potential conflict.”