Oct 11, 2017

New 2018 Requirements for Condominiums and Cooperatives

Central Park West NYC

The New York City Council and the New York State Legislature have recently passed legislation subjecting cooperatives and condominiums to new compliance and reporting requirements.  Although these requirements do not go into effect until 2018, cooperative and condominium boards and their managing agents should be aware of them.

Smoking

On August 28th Mayor De Blasio signed into law a number of bills passed by the City Council amending the New York City Administrative Code to further regulate and discourage smoking.  The use of electronic cigarettes, which many had assumed was already subject to the same “smoking” restrictions as tobacco products, is now banned specifically wherever smoking is prohibited, effective February 28, 2018.  More significantly, all cooperatives and condominiums are now obligated to adopt a building-wide smoking policy and incorporate that policy into the cooperative’s or condominium’s bylaws or house rules.  The policy must address all indoor locations of the building, including common areas and dwelling units, and all outdoor areas, common courtyards, rooftops, balconies, and terraces, and the policy must apply to both residents and all other persons on the premises.

Note that smoking restrictions must be at least as rigorous as current law.  Smoking or the use of electronic cigarettes may not be permitted in any common area.  Restrictions can, however, go beyond the legal requirements.  For example, smoking in apartments might be restricted. We note, however, that because of what we believe may be a drafting error, it is not clear that new restrictions going beyond legal requirements may be applied to existing tenant shareholders in cooperative buildings.  The law contains no limitations on regulating condominium unit owners.

Once adopted, copies of the smoking policy must be distributed to all shareholders or unit owners, or posted, annually.  If there are material changes to the policy in the course of a year, notice of those changes must be given.  Finally, shareholders or unit owners selling or leasing their apartments must incorporate the smoking policy into their sale agreements or leases.

The smoking policy legislation is effective on August 28, 2018.  Once effective, it is unclear to what extent the City will be monitoring compliance, although claims based on failure to comply may be raised by building residents, or possibly new tenants or purchasers.  If the City does mount an enforcement effort, the legislation provides for a range of civil penalties.

Disclosure of Conflicts of Interest

On September 12th, Governor Cuomo signed into law amendments to New York’s Business Corporation and Not-For-Profit Corporation Laws that establish procedures and notification requirements in connection with certain conflicts of interest by persons serving as directors of cooperatives or condominiums incorporated under either of those statutes.  (Most cooperatives are incorporated under the Business Corporation Law.  Since virtually no condominiums are incorporated, the law does not for the most part not apply to them, although we have been advised informally that statutory revisions have already been suggested to change that.)

Commencing January 1, 2018, each director must be provided annually with a copy of the provisions of the applicable statute, which prescribe the procedures to be followed when a board of directors is considering a “related party transaction” (in the case of the Not-For-Profit Corporation Law) or a transaction in which a director is “interested” (in the case of the Business Corporation Law).  Under both statutes, the procedures, in general terms, apply to transactions between a corporation and one or more of its directors, or between a corporation and an entity in which one or more of its directors or directors or officers have a financial interest.  Under the Business Corporation  Law transactions between a corporation and another entity in which its directors or officers are also directors and officers are considered “interested” irrespective of that entity’s ownership.

An annual report must be distributed to the corporation’s shareholders, signed by each director, containing information on any contracts entered into or voted on which involved a “related party transaction” or with respect to which a director was  “interested”.  This report must contain specified detail about the contract at issue and the board proceedings pertaining to it.  If there were no transactions that involved a related party or interested director during the reporting period (which, in most buildings, will be the case) the board must still prepare and distribute a document signed by all directors reporting that fact.

The legislation does not provide for any penalties or enforcement mechanisms for non-compliance.  Nonetheless, non-compliance may result in claims by shareholders or other negative consequences, and the legislation should not be ignored.

If you would like further information about either of the legislative developments discussed above, please let us know.