How Can You Get a Closer Look at Your Co-op’s Expenses?

Q: I am a shareholder in a Brooklyn co-op. One year ago, the board suddenly fired our super, who had worked here for more than 21 years. He immediately began legal action against the co-op, and the matter was settled out of court with a payment to the super. We respectfully asked for more information during a shareholder meeting but were told that the matter was strictly confidential. All the board has said is that the final cost to the co-op was approximately $15,000. This seems low, considering a year of legal fees, mediation and the settlement itself. Our co-op documents imply that the board must account for its use of funds, but there is no specific language. Is the board required to explain how much this cost?

A: Your co-op’s board of directors has a right to enter into a confidential settlement with the super. But that doesn’t mean you can’t find out more.

“While there’s no explicit requirement for the board to detail every expense, they are obligated to provide a general accounting of how funds are used,” said Joseph Colbert, who practices real estate law at Colbert Law, LLC, in Manhattan.

Settlements with confidentiality provisions are common, and the terms of this settlement, including the amount paid to the aggrieved super, can remain secret — it depends on what the lawyers negotiated. But even if shareholders don’t have the right to know about all of the settlement’s terms and conditions, the co-op board is still accountable to them, and it cannot hide the financial impact of the entire lawsuit.

Shareholders can review the co-op’s audited financial statements, said Leni Morrison Cummins, chair of the condominium and cooperative practice at Cozen O’Connor in Manhattan. These statements will reflect the cost of the legal action. There should be a footnote explaining this, but it might be vague. The auditor reviews the books and records, and also requires a legal confirmation letter from the board’s attorney describing all pending or threatened litigation, claims and assessments, during the audit period, Ms. Cummins said.

If the audited statements are not available yet, shareholders have a right to request to review the co-op’s books and records, as long as the request is in good faith and for a proper purpose.

The $15,000 cost of this lawsuit might seem low, but it’s possible that figure was the co-op’s deductible, and the rest was covered by the building’s insurance.

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