A recent amendment to New York's Business Corporation Law, set to go into effect on January 1, 2018, will require condominium boards to produce an annual conflict of interest report that details all contracts involving one or more interested directors.
Developers should be aware of this change because newly formed condominium boards frequently enter into contracts with the developer or its related entities, while the developer's principals are members of the board. In fact, in the early phase of most condominium development projects, the board is often exclusively comprised of the developer's principals – a situation that would trigger the need to report every contract.
Per the new statute, the annual report must include:
- A list of all contracts voted on by the board of directors, including information on the contract recipient, contract amount, and the purpose of entering into the contract;
- the record of each meeting including director attendance, voting records for contracts, and how each director voted on such contracts; and
- the date of each vote on each contract, and the date the contract would be and remain valid.
The new statute specifically targets condominiums, even though condominiums are established pursuant to Article 9-B of New York's Real Property Law, and not the state's Business Corporation Law, which is generally applicable to cooperatives.
However, a proposed technical amendment is expected to clarify that condominiums are indeed subject to this requirement. Presumably it would also clarify who receives the report – the Business Corporation Law amendment refers to "shareholders" receiving the report, however New York condominiums are unincorporated associations with individually owned units.
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