Coops and Condos Be Aware: New Conflict Of Interest Reporting Obligations Go Into Effect on Jan. 1.10/26/2017 | By: David L. Berkey, Esq.
On September 12, 2017, Governor Andrew Cuomo signed into law Chapter 305 of the Laws of 2017, which imposes an annual conflict of interest reporting obligation on cooperatives and condominiums incorporated under the Business Corporation Law or Not-for-Profit Corporation Law. Chapter 305 goes into effect on January 1, 2018.
The law requires cooperatives and condominiums to give a copy of the new law to each director and to give to all shareholders an annual conflict of interest report, signed by each director. The report must list all contracts voted on by the board where one or more of the directors was an “interested” director, and for each contract state:
- the name of the contract recipient, the contract amount, and the purpose of entering into the contract
- the record of each meeting including director attendance, voting records for all contracts, and how each director voted on the contract; and
- the date of each vote on each contract and the effective date of the contract.
An “interested” director is one who is a party to the contract, or is an officer, a director or a person having a substantial financial interest in the entity which is a party to the contract. The purpose of this statute is to make shareholders aware of transactions which involve an interested director, provide to them the facts surrounding the vote, and allow them to take steps, if warranted, to void the transaction with the “interested” director. The disclosure requirement will also dissuade directors from engaging in interested transactions.
Even if the board did not engage in a transaction that requires the above disclosure, it still must prepare and deliver to all shareholders a document, signed by each director, stating “No actions taken by the board were subject to the annual report required pursuant to section 727 of the Business Corporation Law” [or subject to section 519-a of the Not-for-Profit Corporation Law, as applicable].
Although the law presently only applies to condominiums that have incorporated boards of managers, it is likely that the law will be amended to include all condominiums. All boards and their managing agents should comply with the new law. They should consult with counsel to determine if a transaction is one with an “interested” director requiring a full report, or if a statement of no actions can be prepared and delivered to the shareholders instead of a full report.