Annual Interested Director/Manager Reports for Condominiums and Cooperatives
New York Real Estate Journal recently published an article authored by Olshan Real Estate partner Thomas Kearns entitled “Annual Interested Director/Manager Reports for Condominiums and Cooperatives.” The article discusses the Section 727 of the Business Corporation Law (BCL) that was passed in New York in 2018 that requires the managers of condominiums and cooperative housing to notify condominium unit owners and housing cooperative shareholders of any contracts with a third party. Mr. Kearns focuses on where this legislation has fallen short by starting with managing agents he stated, “First, many managing agents appear not to be aware of the requirements (an annual report is required whether or not a contract with an interested director is actually entered into during the year). Second, the penalties for non-compliance are unclear.” He continued by discussing that although the legislation was passed with “good intentions” there are still inconsistencies present. “First, while the director must have a “substantial” interest in the contractor, there is no materiality standard as to the transaction…Second, what about contracts that have ongoing reporting obligations or true-ups like a management agreement or a lease for space?” and lastly, “Third, while the statute names condominiums as being covered by the law, the statute itself refers to directors and not managers, the statutory name for the members of the board of a condominium.” Mr. Kearns continued by explaining the absurdity of the statute’s rule that each director must sign the annual report and receive the BCL Section 713 annually. He concluded by speaking on what could happen if a board failed to comply and gave advice on what someone on a board should do by saying, “If you are on a board, make sure the annual report is sent. If you are a shareholder or unit owner, feel free to ask to see the report every year.” Zachary Freedman assisted with research for this article.