COVID-19 Guidance on Virtual Co-op and Condo Annual Meetings

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Governor Cuomo adopted a temporary disaster emergency Executive Order (the “Executive Order”) that temporarily suspends and modifies the New York Business Corporation Law to allow meetings of shareholders to take place by means of electronic communication (commonly called “virtual meetings”) until December 31, 2021. The Business Corporation Law, as modified by the Executive Order (together, the “BCL”), applies to both annual meetings to elect directors and special meetings of shareholders.

The Executive Order applies to only corporations governed by the BCL. Although the Executive Order does not change the Condominium Act, the courts often apply corporate law and cases to condominiums when the Condominium Act and the condominium documents do not address a condominium issue being litigated. Nonetheless, whether the courts would apply this Executive Order to condos is uncertain. For purposes of this COVID-19 Guidance, assume the portions of the Executive Order that allow meetings to take place virtually will apply equally to condos.

Some matters discussed in this COVID-19 Guidance are based upon best practices when not addressed in the by-laws or the BCL.

In this discussion, the “Board” means the co-op’s board of directors or the condo’s board of managers, “owners” mean shareholders or a condo unit owners, and “owner” means a shareholder or a condo unit owner.

1. BCL

The BCL provides:

(a)        the place of the owners’ meeting for quorum, participation and voting purposes will be on an electronic communication platform chosen by the Board instead of at a physical location; and

(b)        the Board is required to:

(i)         implement reasonable measures for owners not physically present at the meeting to participate in themeeting;

(ii)        provide reasonable measures to enable owners to vote or grant proxies on the matters to be considered at the meeting by means of electronic communication;

(iii)       implement reasonable measures to verify each person regarded as present and voting by electronic communication is an owner; and

(iv)       keep a record of any vote or any other action taken by an owner present, participating and voting by electronic communication at the meeting directly or by proxy.

The term “reasonable measures” is defined in the BCL to mean for:

• participating in proceedings to include, but are not limited to, audio webcast or other broadcast of the meeting; and
• voting to include, but are not limited to, telephonic and internet voting.

These two reasonable measures of participating and voting are hereafter called the “Reasonable Measures Standard”.

2. Agenda for Virtual Annual Meeting

The BCL does not detail how to call, participate in or vote by electronic communication at a virtual meeting. The only protocol given is the Reasonable Measures Standard.

Each Board is to determine what constitutes “reasonable measures”, which may vary depending upon (among other criteria) the number of owners, their access to the internet, and the capability of the co-op/condo or its managing agent to conduct a virtual annual meeting of owners. For purposes of this COVID-19 Guidance, assume most, but not all, owners will have internet access and the managing agent is capable of arranging for owners or their proxies to participate in, and vote by, webcast and telephone.

Nonetheless, all provisions applicable to owners’ meetings (both annual and special) contained in the by-laws or (if not contained in the by-laws) the BCL shall apply, but are to be adapted to an electronic communication platform and conducted in accordance with the Reasonable Measures Standard. These provisions include (among others) for an owners’ meeting to elect Board members:

• the provisions concerning the record date for determining who is an owner entitled to be given the notice of meeting and to vote;
• attendance and voting by proxy;
• quorum;
• agenda or order of business;
• appointing impartial inspectors of election;
• the oath of inspectors;
• the report of inspectors;
• nominating candidates to be elected as Board members;
• casting votes by ballots; and
• the number of votes required to elect Board members (e.g., cumulative voting or plurality) or to transact other business.

3. Annual Meeting Package

Customarily, the Board notifies owners of a forthcoming annual meeting and invites those eligible to serve on the Board to send to the managing agent their contact information and a one page profile, which would be distributed to all owners with the formal notice of the annual meeting. When the date and time to hold the annual meeting are determined, the Board or its managing agent sends an annual meeting package to owners consisting of a letter notifying all owners of the place, date, time and purpose of the meeting, accompanied by the formal notice of meeting, the profiles provided by the candidates, and a proxy appointing one or more Board members or officers as the proxyholder to attend the meeting for quorum purposes and to vote on the matters to be conducted at the meeting, as directed by the owner in the proxy.

The BCL does not preclude an in-person annual meeting. In the case of a virtual annual meeting, the annual meeting package is now required to comply with the BCL. In brief:

• the notice of meeting of owners shall state:
• the date and hour of the meeting; and
• the meeting shall take place on a specified electronic communication platform and a call-in telephone number whereby shareholders and proxyholders may participate in the meeting and vote;
• the notice may be written or electronic;
• the notice shall be given not fewer than ten nor more than sixty days before the date of the meeting, provided, however, that such notice may be given by third class mail not fewer than twenty-four nor more than sixty days before the date of the meeting, to each owner entitled to vote at such meeting;
• if mailed, the notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the owner at the owner’s address for notices as it appears on the records of the co-op/condo or such other address for notices as the owner shall have filed with the secretary of the co-op/condo; and
• if the notice is transmitted electronically, the notice is given when emailed to the owner’s email address as supplied by the owner to the secretary of the co-op/condo or as otherwise directed pursuant to the owner’s authorization or instructions.

Although the BCL allows the notice of meeting to be given in writing or electronically, read this to mean the notice must be sent in writing to an owner who has not provided an email address, in accordance with the Reasonable Measures Standard.

If the time period to give the notice before the date scheduled for the annual meeting contained in the co-op’s by-laws is inconsistent with the BCL, a co-op is to follow the time period in the BCL, which controls co-ops only. A condo is required to comply with the time period contained in its by-laws, but presumably may send the notice of meeting in writing or electronically.

In the case of written notices, the by-laws often do not differentiate between the method to be used to send a notice of an annual meeting and a formal notice of default or the like, which usually is required to be sent by registered or certified mail, return receipt requested. The BCL sets the time period requirements to send the notice of annual meeting, but does not preclude a more stringent standard to be provided in the by-laws. The BCL now adds electronic transmission (email) as a means to send notices of meetings of owners, but does not change the requirements for written notices. The Condominium Act contains no requirement for sending notices of annual meetings of owners. To avoid claims to set aside the election of the Board members and other business transacted at the annual meeting because the written notice was not sent as required in the by-laws, the best practice would be to send the written notice in the manner mandated in the by-laws. But for co-ops, be sure to send the written notice in accordance with the time period requirements contained in the BCL.

The usual letter to owners and the formal notice of annual meeting must be updated to explain the meeting is to be held virtually on a specified electronic communication platform and call-in telephone number instead of at a physical location, and the instructions to follow in order to join and participate in the meeting. In order to verify each person regarded as present and voting by electronic communication or by telephone is an owner—one of the required Reasonable Measures Standard—the letter should explain this requirement and how it is going to be accomplished.

To this end, consider assigning to each owner a personal identification number (“PIN”), which the owner is to use as proof of identity as an owner entitled to participate and vote at the meeting. The PIN, for example, may be the account number of the owner maintained on the co-op’s/condo’s records and would be sent separately to each owner by email or (absent an email address) in the manner provided in the by-laws for giving notices.

The usual form proxy is to be reformatted to provide for a virtual meeting and preferably a blank line to write in the owner’s PIN. The proxy form may contain a list of known candidates with added blank lines for the owner to nominate candidates chosen by the owner. The proxyholder would be required to vote for the candidates check marked by the owner, unless the form proxy being used permits the proxyholder to vote in his/her discretion. The courts liberally enforce proxies and likely would uphold a proxy that clearly indicates the intent of the owner, even though not all “i’s” are dotted or “t’s” are crossed.

NOTE: The proxy is not, and cannot be used as, a ballot. The proxyholder is still required to attend and vote virtually on the electronic communication platform being used for the meeting, unless the owner attends the meeting electronically or by telephone and votes. In such case, the proxy automatically shall be revoked.

If the meeting is to include a vote on a proposed amendment to the governing documents or other proposition, the notice of meeting is to include the text or a summary of the material terms of the proposed amendment or the proposition. Similarly, the proxy is either to direct the proxyholder to vote for or against the amendment or other proposition, or to allow the proxyholder to decide which way to vote, depending upon the form proxy being used.

A proxy does not have to be notarized and an executed proxy returned by email is valid. The BCL, however, does not address whether the proxy requires the owner’s actual signature vs. a virtual signature, like DocuSign. The validity of a proxy signed with a virtual signature is uncertain. If attaining a quorum historically is difficult, or the election is expected to be contested, or owners are to vote on a proposed amendment to the governing documents or other proposition, the actual signature of the owner is preferred to avoid potential claims that a virtually signed proxy cannot be counted for quorum or voting purposes. The letter to owners accompanying the annual meeting package is to clearly state whether owner’s actual or virtual signature on the proxy is required

4. Registration

All owners are to be notified well in advance of the scheduled date for the virtual meeting, to register on the electronic communication platform chosen by the Board. The email notice is to include, and instruct owners to use, a hyperlink in order to register on the chosen platform (webinar) and preferably should include dial-in telephone numbers for owners who desire to participate by telephone or do not have internet access. The written notice to owners should contain the same information, including the hyperlink.

5. The Annual Meeting

The Board has several electronic communication platforms to choose from for hosting an annual meeting (see paragraph #6 for sample platforms, number of participants and costs on July 1, 2020.) A platform that is capable of hosting audio/video and telephone, and is user-friendly, is preferred.

The virtual meeting does not excuse the Board from skipping items in the agenda for the meeting contained in the by-laws. These include (among others) reasonable measures to prove a participant (whether on the electronic communication platform or telephone) is an owner entitled to be counted for quorum and voting purposes.

There is no fixed period from the time of the meeting stated in the notice of meeting within which to determine whether a quorum is present. Advise participants to start the process of joining the virtual meeting say 10 minutes or more before the time stated in the notice and allow sufficient time for late arrivals to join in. If not previously delivered to the Board or managing agent, proxyholders are to email their proxies when joining in the meeting in order to be counted for quorum and voting purposes. The Board should also consider to arrange delivery of the proxies to the managing agent or other representative in advance of the meeting, especially for those proxyholders who are participating by telephone.

Using proxies for quorum purposes may fall short if a sufficient number of owners fail to complete and sign the proxy. Determine whether the electronic communication platform being used has the means to identify a participant joining in the webinar or by telephone is an owner. Otherwise, the process for establishing a quorum is present will be difficult and cumbersome.

If customary or desired, arrange for the accountant to report virtually on the financial status of co-op/condo and for the applicable Board members to report virtually on topics of concern or interest.

Allow a Q and A time period for participants to virtually ask questions or to raise other appropriate matters. This period may be more challenging or cumbersome, depending upon the number of owners and issues pending in the building. To address this problem, consider encouraging owners to submit to the managing agent in advance of the meeting questions or matters to be discussed at the meeting and choosing an electronic communication platform that will permit participants to submit questions or comments during the course of the meeting. But still allow participants to raise questions and matters during the Q and A period.

The by-laws rarely, if ever, detail the procedure to nominate candidates seeking election to the Board. Unless otherwise provided in the by-laws, follow the building’s historical protocol to nominate candidates. If owners are allowed to list themselves on the proxy as candidates, then participants are to be given the same opportunity to nominate candidates, including themselves, at the virtual meeting.

Each candidate is to be given an equal opportunity at the virtual meeting to address the participants and promote his/her credentials and candidacy.

Adapting the ballot for a virtual meeting is more involved and uncertain. The BCL does not address electronic signatures, or the means to verify a signatory is an owner entitled to vote, or how owners who participate in the virtual meeting by telephone are to cast their ballots. A contract or other transactional document executed with a DocuSign signature is recognized as being legally binding. A ballot similarly executed with a DocuSign signature appears to meet the Reasonable Measures Standard. Consider adding to the ballot a line for the owner to fill-in his/her PIN and choosing an electronic communication platform that has these capabilities.

How may owners participating in the virtual meeting by telephone cast their ballots? Voting by telephone in a building with few owners may be feasible, but impracticable for a building with a considerable number of owners. Owners participating by telephone, however, must be afforded the right to vote. Perhaps mail-in ballots used in local, state and federal elections, adapted for Board elections, is a Reasonable Measures Standard.

One adaptation would involve giving owners the form ballot in advance of the meeting. Before voting, the person conducting the meeting would advise owners participating by telephone to complete, sign and return the ballot to the managing agent by mail or in a sealed envelope addressed to the managing agent and given to a lobby attendant or superintendent for delivery to the managing agent. Alternatively, these owners could place their ballots in a ballot box located in the lobby or mail box area for pick-up by the property manager or other representative of the managing agent. The cut-off date to return the ballot would be no later than the first business day following the day the virtual meeting is held (the “Cut-Off Date”). For the ballot to be counted by the inspectors, it must be post-marked (if returned by mail) or given to the lobby attendant, or superintendent or the property manager or other representative of the managing agent, or placed on the ballot box, no later than the Cut-Off Date.

Once a ballot is cast, it cannot be changed, even if the votes are still being counted. If the owner or proxyholder casts two ballots, both ballots will be voided and the presence of the owner or the proxyholder at the meeting shall be counted for quorum purposes only. (If both the owner and proxyholder cast ballots, the ballot of the proxyholder automatically is revoked, as mentioned above.)

This adapted mail-in ballot procedure would inevitably delay the outcome of the election until all ballots returned by mail are received and tallied.

This mail-in ballot method to vote would be fully explained in the Board letter to owners enclosing the form ballot.

In the event a quorum is present but not all open seats are filled at the election, the vacancies may be elected by the new Board members if permitted under the provisions of the by-laws. This should be explained in the Board letter to owners if this is anticipated, whether historically or due to the pandemic, and is to be implemented by the Board.

6. Electronic Communication Platforms

There are many available electronic communication platforms. Several popular platforms and their costs on July 1, 2020 and capacity for participants are listed below. The Board should consult with the managing agent and choose the platform most suitable, user-friendly and cost efficient for the building.

Zoom:

Free version: up to 100 participants per meeting. Calls are limited to 40 minutes.

Pro version ($14.99 per month). Up to 100 participants per meeting. Limit of 500 available for additional $50 per month. Calls can be up to 24 hours.

Business version ($19.99 per month). Up to 300 participants per meeting. Limit of 500 available for additional $50 per month. Calls can be up to 24 hours.

WebEx:

Free version: up to 100 participants per call. Calls can be up to 50 minutes. Starter version ($13.50 per month). Up to 100 participants per call. Calls can be up to 24 hours.

Go To Meeting:

Pro version: ($12.00 per month). Up to 150 participants per call. No time limit on calls. Business version ($16.00 per month). Up to 250 participants per call. No time limit on calls.

7. Validity of Executive Order

The enforceability of this Executive Order is clouded by the federal Constitution, which prohibits laws that impair contractual obligations. A co-op’s/condo’s by-laws are a contract and most likely require meetings of owners to take place at physical location and not “virtually” by electronic communication. Relying solely on this Executive Order to hold a virtual annual meeting of owners to elect Board members, risks a potential post-election challenge to the validity of the virtual meeting. To avoid or minimize this risk, consider amending the by-laws to authorize a virtual meeting of owners during the period this Executive Order remains in effect. Such amendment may be easy to do for a co-op, depending upon the amendment terms contained in the by-laws (which often permit the directors to amend the by-laws without the consent of the shareholders). In the case of a residential condo, however, the vote or (if permitted in the by-laws) written consent of at least two-thirds of all owners, in number and common interest, is required to amend the by-laws pursuant to the Condominium Act, which is considerably more challenging.

8. Nature of this COVID-19 Guidance

The subject matter of this COVID-19 Guidance is novel. The foregoing discussion is not a formal opinion of this firm and is for your consideration only. Boards are to consult their counsel for further guidance on the foregoing various aspects of annual and special meetings of owners.