Eric Sherman, a partner in Pryor Cashman's Real Estate Litigation practice, was featured in a recent Q&A with The Cooperator discussing the rights of shareholders to inspect a cooperative's books when there is a suspicion of building money being misused. Associate Marion Harris also contributed to the Q&A, excerpts of which are published below.
Q: I am a shareholder in a cooperative apartment, and I believe that building money is being used for personal uses. I have been denied access to the building's books. As a shareholder, what can I do to see them?
A: Cooperative shareholders are afforded certain rights by statute, under common law and possibly in the co-op's governing documents, to inspect the books and records of the cooperative corporation. What constitutes a cooperative corporation's "books and records," however, has been the source of much litigation in New York courts. And in many cases, what a shareholder is entitled to see is a function of the way in which the materials are requested.
If a shareholder makes a general request to review a corporation's "books and records," then that corporation is only required to make available materials specifically enumerated in the Business Corporation Law (BCL) — namely: (i) a record of shareholders; (ii) shareholder meeting minutes; and (iii) profit and loss statements.
A more detailed request for inspection (i.e., identifying categories/types of documents to be inspected), provided it is made "in good faith and for a valid purpose" must be honored by the cooperative corporation. For example, it is clear under New York law that seeking to investigate potential mismanagement or breaches of fiduciary duties (which could arise from the use of building money for personal use) are appropriate grounds for requesting inspection of books and records, provided that the inquiry is grounded in good faith and for a valid purpose. Note, however, that the board of directors may condition your access to the documents on the execution of a reasonable confidentiality agreement.
More About Sherman's Practice
Eric Sherman maintains a nationally-recognized real estate practice where he represents clients in both commercial and residential matters. In the residential arena, he advises cooperative and condominium boards in New York, acting as general counsel and attending to day-to-day issues, intra-building disputes and enforcement of sponsor obligations. He also represents individual cooperative shareholders and condominium unit owners in disputes with boards and others.
Sherman is a frequent contributor to the New York Times and other publications on topics related to real estate and litigation. Learn more about his practice here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.