It is not easy being a board member. There are meetings to attend, documents to review, decisions to make and neighbors to mollify. There are also a number of rules and regulations that must be followed in order to ensure that the individual and collective actions of a board meet all legal and ethical requirements.
Fortunately in New Jersey, there are several laws that serve as guideposts. “The powers are always going to be enumerated in the bylaws,” says attorney A. Christopher Florio of Stark & Stark in Princeton. “What is also helpful here in New Jersey is the Condo Statute that aids us from a statutory standpoint—what additional powers there may be for the condo if they are not set forth in the bylaws.”
And, adds attorney Steve Troup, partner at law firm Tarter Krinsky & Drogin based in New York City, “In both co-ops and condos, [those powers are detailed in] the bylaws and the Business Corporation Law (BCL). In addition, it’s possible that a condo’s declaration of condominium may prescribe certain actions, but typically the declaration defers to the bylaws.”
The definitions of board members’ roles tend to be “very general in nature,” says attorney Alessandra Stivelman, partner with the firm of Elsinger, Brown, Lewis, Frankel & Chaiet, PA, based in Hollywood, Florida. “For example, it may say ‘treasurer will handle finances,’ but those powers can be expanded as time goes on. There may also be restrictions in the document, such as the president cannot also be the secretary.”
There are few major differences between the rules and regulations that outline the powers of board members in co-ops and condos. There are “no differences between co-ops and condos, just the differences in each entity’s governing documents,” says Troup. “Even though the BCL does not state that it applies to condos, courts have long ‘borrowed’ from the BCL and applied the principles to condo governance in many areas” such as the business judgment rule and proxy issues.
The only area where Stivelman sees a potential difference is in the denial power that board members in co-ops have versus those in condos. Specifically, she is referring to the authority that board members have in turning away potential co-op buyers who may not meet their specific criteria of ownership. “Because of the differences in the ways co-ops and condos are structured, there are different rights of denial,” she says, citing the specific case of a board denying former United States President Richard Nixon’s attempts to buy into a co-op following his resignation from office in 1974.
Securing the Community
When it comes to following the correct protocols, procedures and expectations in governing, there are a number of areas of concern over which board members must remain especially vigilant. These include security and privacy, two issues that often overlap one another.
In addressing security, the fact is that most residents expect an appropriate level of security in their co-op, condo or association. It is one of the benefits that draws owners and shareholders to residential communities. On the other hand, people also do not like to feel that the need for security infringes on their rights for privacy or freedom of movement.
When recommending or voting on new measures related to security, board members should consider those expectations. For example, “it’s perfectly normal to want to have cameras in common areas,” says Stivelman. “It’s when a resident wants to point cameras in a certain direction – maybe into a window – then it could be a problem.”
Having audio along with the video could represent another bone of contention. “Some states have requirements on audio,” says Stivelman. “I’d caution my associations on the use of audio.”
Troup agrees. “Neither a condo nor a co-op may have cameras that point into apartments or other private areas, but photographing the hallways and apartment door exteriors is lawful.” And when it comes to other security measures such as guards and visitor logbooks, those “are generally permitted and would be protected by the Business Judgment Rule so long as they were undertaken in good faith.”
In some states, undertaking security measures outside the norm may leave a board vulnerable to added legal responsibilities. “[If] an association or board undertakes certain security measures, then the board should be mindful that undertaking the provision of security for owners and residents may create a duty on the part of the association,” says Kelly C. Elmore, principal attorney with Kovitz Shifrin Nesbit in Chicago.
Under Illinois law, this means that although a condominium association is generally not responsible to protect owners or residents from the bad acts of third parties, “Illinois courts have held that a landlord or an association may be held liable for the criminal acts of third parties where there has been a voluntary undertaking to provide security measures, but in undertaking this, the landlord or association performs the undertaking negligently and the negligence is the proximate cause of injury to the plaintiff,” says Elmore.
No doubt a significant issue for any board is that of privacy. It can be difficult walking the line between trying to provide as much privacy as any resident or shareholder expects or deserves while at the same time, seeking to address problems or concerns that could cause tensions around those expectations.
For example, when a board member is told that a pipe has burst and is soaking surrounding units, does he or she have the authority to enter a unit to assess damage or determine that a plumber needs to be called?
“Generally, non-emergency access must be preceded by reasonable notice, both in method and number of days given to the unit owner,” says Troup. “Emergency access may be made without advance notice.”
“In Florida, the governing documents allow the association to enter a unit in an emergency to take action and protect common elements,” says Stivelman. “A statute also was amended that allows entry in the event a unit is deemed abandoned. This was because of issues faced with foreclosures (during the Great Recession).”
Board members and managers who enter a unit without permission should always exercise great caution, says Stivelman. “They should film their entry or have additional people there, because you don’t want to the owner to say something was broken or missing. I strongly advise people to exercise this option sparingly.” (For more on accessing units in the absence of residents, see the article ‘Accessing Units – Balancing Privacy and Expediency’ elsewhere in this edition of The New Jersey Cooperator. -Ed.)
These questions of privacy can include the protection of personal information as well. When shareholders and unit owners take up residence in a new building or community, they no doubt have shared a significant amount of information with management and the board, including birth dates, social security numbers, banking information for automated fee deductions, and more. Not only must boards and managers protect this information from outside predators, they also must know the appropriate uses for this information, ensuring they do not inadvertently share it in ways that could harm the resident or open the board itself up to issues of liability.
In New York, boards can have access to names, addresses, social security and employer identification numbers and emergency contact information, says Troup. When it comes to making that information available to others, “No confidential information – such as social security numbers – should ever be shared. It is yet to be definitively decided in court whether phone numbers and email addresses may ever be disclosed to third parties.”
“In New Jersey, if you look at Title XV, there is certain language there that allows certain information to be given out. A lot of folks will use that to say ‘We want to know the names of everyone that owes money, their unit number and how much they owe.’ That is the one request that comes up a lot for me,” says Florio. “There are different interpretations and I don’t expressly think that they are entitled to it, but if there is anything that is going to potentially put our client at risk from a member, even if it is factually true what we are going to give out, I’m going to tell my client that they will not disclose that information. I’m not going to give out any information about what people owe. I’m not necessarily going to give out information about mediation that took place unless the parties agree. If it is a reasonable request, I’m going to try to get that information to them that is both securing the privacy of the individual and addresses in a reasonable manner.”
“Whenever associations get a records request, they should check with their attorneys to make sure it’s okay to share that information,” says Stivelman.
And when it comes to personal banking information, boards must be extra vigilant. For example, if a unit owner or shareholder falls behind with their fees, boards in no way have the authority to debit those fees from the resident’s account simply because they have the means to do so. “Technically that would be larceny, and could subject the board and/or managing agent to criminal liability,” says Troup. If things seem too easy, or individuals have even the smallest inkling that something might be inappropriate, it always makes sense to check with an authority, whether it’s an accountant, attorney or the property manager.
Using Good Judgment
When residents and shareholders elect board members, they are demonstrating their trust in that individual, believing he or she will use their best judgment in governing the community they call home. When boards seek to pass new regulations or restrictions, they not only should consider the reasonableness of their initiative, they also should be checking to make sure it does not contradict existing rules.
“With both co-ops and condos, rules and regulations (e.g., house rules) may not contradict the terms of the governing documents such as proprietary lease and by-laws,” says Troup. “Also, major issues relating to occupancy and use of the units, other than routine house rules, should not be implemented by a board, only by the unit owners or shareholders.” Examples of this would include sublet fees and flip taxes.
Adds Stivelman, “If your documents say you can’t have pets, then you can’t implement rules to say you can have pets. However, if you’re governing documents say that you can have pets, then the board can have rules specifying what kind of pets are allowed. You just can’t supersede the governing documents.”
For board members, perhaps the best approach to governance involves ensuring a familiarity with governing documents while at the same time, putting his or her good judgment to use with each and every decision. Erring on the side of caution and consulting experts when needed can reduce conflict among board members, with residents and shareholders, and with the law.
Liz Lent is a freelance writer and longtime contributor to The New Jersey Cooperator.