HABITAT Magazine

At a large housing cooperative in Lower Manhattan, one of the nine board members sold his apartment and moved to another state, while a second board member is living in a foreign country and subletting his apartment. Both continue to serve on the co-op board. Is this legal? What recourse do shareholders have?

The law does not dictate that co-op directors must be residents of the building, or even shareholders in the corporation, replies the Ask Real Estate column in The New York Times. As with so many disputes in housing co-ops, the solution to this one could lie in the cooperative’s governing documents.

Start with the bylaws. Do they allow people who don’t live in the building to serve on the board of directors? Do they require shareholders who have sold their shares to relinquish their board seats?

It’s possible the bylaws are silent on these issues. But if residency is required, shareholders could compel the resignation of the nonresident directors, says Leni Morrison Cummins, chair of the condominiums and cooperatives practice at the law firm Cozen O’Connor.

The question about absentee members raises a larger issue facing some co-ops: Is the board serving the interests of the residents, or of investors? Over time, cooperatives have allowed shareholders not just to have their primary residence elsewhere or rent to a subletter, but to buy shares as investors. “This,” Cummins says, “has led to many cooperatives having split populations: one of residential shareholders and one of investor shareholders.”

Typically, she adds, resident shareholders want to invest to make their daily lives better and to maintain restrictions on occupancy and sublets. Investor shareholders, on the other hand, often prefer to keep costs down and to loosen restrictions on occupancy and sublets. Conflict is inevitable when interests diverge in this way.

Shareholders can vote to create a residency requirement, but if your building has many investors, this could be difficult. (Amendments to bylaws frequently require approval by a super-majority of shares, commonly two-thirds, a high bar.)  “If the shareholders don’t amend the bylaws to restrict board membership, try to develop a meaningful relationship with the nonresident board members and share your concerns,” advises Andrew I. Bart, senior counsel at the law firm Kagan Lubic Lepper Finkelstein & Gold.

And remember that a co-op is a democracy, so shareholders can run for a board seat in the next election. “Campaigning and collecting proxies can take some effort,” says William Geller, counsel with the firm Braverman Greenspun. “But if the (shareholder) wants to change the direction of the building, that can be a very effective way to get things done.”