100% owner approval needed to amend governing documents

Started by ChrisE8 • 14 replies • 696 views

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ChrisE8
Posts: 454

Posted:

I'm dealing with bylaws that require the approval of 100% of owners to approve changes as long as the original developer holds any interests in the HOA. The bylaws were written decades ago and don't match how the HOA currently works. Owners have pointed this out.

HOA management went to the developer and said, "if you'll agree to lower this approval requirement to something more reasonable, even 75% to 90%, we'll add a prohibition on amending bylaws without your consent."

The developer said no (in my view, out of spite). The developer wouldn't really agree to any bylaw amendments, other than a few minor things.

So we're stuck with bylaws that basically can't be amended, even to match changes in state law.

Has anyone dealt with governing documents that require unanimity for amendments? If so, what did you do in that case?

I figure that we could amend the Certificate of Incorporation instead and put whatever we want in it, since that has a much lower approval threshold, and the bylaws (I believe) say that in case of a conflict, the Certificate of Incorporation controls.

If the developer is on the board, couldn't it be a breach of fiduciary duty to refuse to make normal, legally-required updates to the bylaws?

Thanks.

ChrisE8
Posts: 454

Posted:

To add, one key issue with the bylaws is that they have arcane requirements for calling board meetings, which aren't followed. So NO board meeting is validly called.

So due to having outdated bylaws, we don't have any valid board meetings, and we haven't for years. And now all board members are aware that their board meetings are invalid. But that issue can't really be fixed without getting 100% approval, which might never happen.

I'd be curious if you've faced this situation and, if so, what you did about it.

Thanks.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

I have been in associations where the Developer/Declarant held control via various methods. This is quite common. Though I have never heard of 100% of all owners needing to approve changes, with the Developer/Declarant being an owner they effectively have veto power.

How do your docs read for changes once the Developer/Declarant has turned the association over to owners?

Does the Developer/Declarant intend to stay in control somehow versus turn the association over to the owners eventually?

No need to rewrite anything to comply with state law, as state law overrides all docs. Nice to do so, but not needed.

KerryL1 (California)
Posts: 14,550

Posted:

This is the building where you're selling your unit, right Chris? Not the one you moved into recently??

Will you please quote the exact words of th bylaws needing 100% approval to amend?

Will you cite NY statutes or whatever that oppose your Bylaws?

ChrisE8
Posts: 454

Posted:

Thanks. Correct.

From the bylaws:

"Anything herein contained to the contrary notwithstanding, so long as any Sponsor Shares are issued and outstanding, these Bylaws may not be altered, amended, repeated or added to without the unanimous consent of all shareholders."

I don't know if NY state law overrides this; I doubt it.

ChrisE8
Posts: 454

Posted:

Sorry, to add: the declarant turned over control to the HOA years ago, but the "Sponsor" (declarant) still owns a small number of units in the building.

CathyA3 (Ohio)
Posts: 6,299

Posted:

I would question whether the Declarant ceased to function in this role once he turned over control to the homeowners. Right now he's simply another homeowner, in my view - why should he have powers that exceed those of other homeowners at this point?

I think this needs a legal opinion.

(I agree that 100% approval is too high a bar. Most people here have reported 67% or 75% in their governing docs, and a few only need a simple majority.)

ChrisE8
Posts: 454

Posted:

Thanks. 100% is insane, and if I were a director, I'd want that lowered so that the bylaws could be amended, at least just to track how the board actually operates.

I have no record of who the "Sponsor" is, but unless I find records that contradict the director's claim that he's the "Sponsor", I'll need to accept that 100% approval is required.

KerryL1 (California)
Posts: 14,550

Posted:

What % is needed to amend the Covenants or whatever they're called in that building? That building is a co-op?

AugustinD
Posts: 5,144

Posted:

-- Given the mention of a "sponsor," I think this is a co-op. Please confirm.

-- On the net I see assertions that most New York co-ops are subject to New York's Business Corporation Law (BCL). Notably from an informational publication from New York's attorney general at https://ag.ny.gov/sites/default/files/coop_board_directors.pdf

-- Diving into the BCL, I see BSC § 601, which states:
=== Start BSC 601 ===
(a) The initial by-laws of a corporation shall be adopted by its incorporator or incorporators at the organization meeting. Thereafter, subject to section 613 (Limitations on right to vote), by-laws may be adopted, amended or repealed by a majority of the votes cast by the shares at the time entitled to vote in the election of any directors. When so provided in the certificate of incorporation or a by-law adopted by the shareholders, by-laws may also be adopted, amended or repealed by the board by such vote as may be therein specified, which may be greater than the vote otherwise prescribed by this chapter, but any by-law adopted by the board may be amended or repealed by the shareholders entitled to vote thereon as herein provided. Any reference in this chapter to a “by-law adopted by the shareholders” shall include a by-law adopted by the incorporator or incorporators.

(b) The by-laws may contain any provision relating to the business of the corporation, the conduct of its affairs, its rights or powers or the rights or powers of its shareholders, directors or officers, not inconsistent with this chapter or any other statute of this state or the certificate of incorporation.
=== End BSC 601 ===

-- Here is the site from which I am working: https://codes.findlaw.com/ny/business-corporation-law/bsc-sect-601.html . It needs to be triple checked with an authoritative site of New York statutes.

-- I do not think section 613 has any bearing on the question here.

-- Unfortunately of the many sites on the web that discuss amending a NYC Co-ops bylaws, I cannot nail down that BSC 601 controls. Still I'd want to know why it should not. So far by my reading, BSC 601 does apply.

-- From a quick review of what the BCL says about amending the Certificate of Incorporation, whether the Certificate of Incorporation can be amended to Chris's and others' preferences "depends" on a number of things.

ChrisE8
Posts: 454

Posted:

Thanks- very helpful.

The NYBCL doesn't have much to say on this point because the insanity of having bylaws with a 100% approval requirement doesn't happen often, except in HOA-world.

This is a co-op.

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By ChrisE8 on 12/21/2020 5:14 PM

The NYBCL doesn't have much to say on this point because the insanity of having bylaws with a 100% approval requirement doesn't happen often, except in HOA-world.

Pardon? If you read Section 601 as quoted above, it says the Bylaws may be amended by a majority vote.

So far I see nothing in the BCL that says a co-ops Bylaws trump the BCL.

On the other hand, my review is far from comprehensive, to say the least.

The BCL also has a great deal to say about amending the Certificate of Incorporation, including sections of the Certificate that speak to the Bylaws.

KerryL1 (California)
Posts: 14,550

Posted:

Good find, Augustin!

ChrisE8
Posts: 454

Posted:

Quote:

Posted By AugustinD on 12/21/2020 5:19 PM

I had not seen that. Brilliant find; thanks a million!

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