Practitioners who represent buyers of co-op or condo apartments perform their due diligence. Those who represent buildings are familiar with the governing documents. Board members, particularly if they are lawyers, know their building’s documents. Often, this means they have reviewed the by-laws and proprietary lease in a co-op and the declaration and by-laws in a condominium. A co-op’s certificate of incorporation and a condominium’s tax lot drawings are frequently overlooked, however, even though they are important and may contain material information that may be relevant to the buyer’s decision to purchase the unit (and will be binding on the buyer after the closing regardless of whether the buyer discovered it in due diligence.)
Turning first to the certificate of incorporation, the vast majority of New York’s co-ops were (and still are) formed under the Business Corporation Law. Pursuant to that Law, there are certain rules regarding the governance of the co-op that can be found in the by-laws or the certificate of incorporation (the certificate is on file with the Secretary of State.) For example, quorum requirements can be set in either the by-laws or the certificate and, indeed, in order to require a supermajority quorum (concededly, rarely the case for a co-op) the provision must be in the certificate. N.Y.B.C.L. 608. The certificate may include specific requirements for the election of directors, such as number of votes required if more than a plurality. N.Y.B.C.L. 614.
A particularly telling example: a building had been holding elections for years based on straight voting – i.e., if you owned 100 shares, you could vote 100 shares for each person you wanted to elect. When the board retained new counsel, she did something apparently no one else had done – she read the certificate of incorporation. It turns out that the certificate provided for cumulative voting – i.e., you multiply your 100 shares by the number of open seats and vote them any way you want (e.g., if there were three open seats, you could vote 300 shares in any formulation – 200 for one person, and 50 for each of the others.)
Why was this so important? Numerically, cumulative voting often allows minority factions a seat on the board. And that is precisely what happened in that building. Further, the authority to vote cumulatively is only valid if found in the certificate. N.Y.B.C.L. 618. If cumulative voting is called for in the by-laws, as it sometimes is, but the certificate is silent, cumulative voting is simply not properly authorized.
Turning to condominiums, tax lot drawings – which are the architectural drawings filed with the City’s Tax Map Unit and recorded with Register of the City of New York –should not be overlooked in due diligence or board governance. Why are they important? According to the Condominium Act, at N.Y.R.P.L. 339-p, the tax lot drawings must show the layout, location, unit designations and approximate dimensions of the units as they were filed with and approved by the appropriate governmental agency (the Department of Buildings in New York City.) N.Y.R.P.L. 339-p. They also, together with the declaration, tell you whether an area is deemed part of a unit, a common element, a limited common element or whether an area – such as a hallway, a staircase, an elevator, a lobby – is part of a specific section (residential, commercial, garage.) Some tax lot drawings identify easements and licenses. All of this information is important, and should be read against the declaration and by-laws, to determine and confirm such things as responsibility for repair and maintenance, ability to use a roof or setback, insurance requirements and the like. One caveat – tax lot drawings today contain far more information than tax lot drawings of 20 and 30 years ago. They are recorded and available and recently-recorded drawings can be found on ACRIS.
Historically, certificates of incorporation and tax lot drawings were often not reviewed. Regardless of the reason, practitioners and board members should look at these documents carefully and keep them with their building files as the information they contain will be instructive and may be invaluable.