Nativ Winiarsky – Protecting Your Co-op: Legal Steps for Dealing with Disruptive Shareholders

When your co-op or condo board faces a shareholder who’s disruptive, in arrears, or disregarding building rules, you have a powerful legal tool: the ability to terminate the proprietary lease and evict the shareholder. As attorney Nativ Winiarsky, partner at Kucker Marino Winiarsky & Bittens, explains, the Pullman decision gives boards extraordinary authority, but only when exercised with fairness and precision. If a board mishandles the process, it can expose itself to costly challenges and reputational damage. This checklist translates Nativ Winiarsky’s insights into a clear, step-by-step guide for boards that want to act decisively and lawfully.

1. Understand Your Authority

• Before taking any action, board members must know exactly what the governing documents allow.
• Review the proprietary lease and bylaws carefully. The termination clause is often paragraph 31(f), which incorporates what’s known as the Pullman Clause.
• Determine who must vote. Some leases require a board vote, others a shareholder vote, and some specify the level of approval needed, whether it’s a simple majority, two-thirds, or a supermajority.
• Know the business judgment rule. Courts defer to a board’s decisions if the board acts within its authority, in good faith, and to further the cooperative’s legitimate purposes.
• Recognize the limits of your power. If a board acts outside its authority, even for seemingly reasonable reasons, the court may overturn its decision.

2. Conduct the Process Methodically

• Every procedural step must be exact. Courts scrutinize these cases because they affect someone’s home.
• Send a proper notice. Schedule a special meeting and inform the shareholder of:
  • The purpose, date, and time of the meeting.
  • The specific allegations to be discussed.
  • The shareholder’s right to appear, bring an attorney, and respond.
• Treat the meeting as a trial.
  • Present evidence of the conduct or violation.
  • Allow the shareholder (and their attorney) to make their case.
  • Record and transcribe the entire proceeding.
• After hearing both sides, the board should issue a formal resolution with a clear factual basis for termination. Merely stating a conclusion without details risks invalidation.
• Follow notice sequences precisely. If you issue a notice to cure, any notice of termination must later specify that the shareholder failed to cure. Omitting that detail can lead a court to throw out the case.

3. Safeguard Fairness and Good Faith

• Even a flawless process will fail if the board’s motives appear biased or self-serving.
• Act in the co-op’s best interest, not personal interest. Self-dealing or retaliatory actions can void the protection of the business judgment rule.
• Avoid discriminatory or arbitrary treatment. If the court suspects bias or favoritism, it will review the case on its merits instead of deferring to the board.
• Directors with personal connections, such as a prior bid on the unit, should disclose the conflict and recuse themselves.
• Stay consistent. Do not treat one shareholder differently than others under similar circumstances.

4. Handle Nonpayment Cases with Balance and Care

• Financial hardship cases require a board to balance compassion with fiduciary responsibility.
• Remember your duty: the board must maintain the building’s financial health and ensure that all shareholders meet their obligations.
• Consider flexibility. Offering reasonable payment plans or short extensions is fine, but prolonged inaction harms the community.
• Resolve before litigating. Settlement or payment agreements save legal costs and preserve neighborly relations.
• Act only when necessary. When a shareholder refuses to cooperate or is not forthcoming, the board’s fiduciary duty requires decisive action.
• Ultimately, though, compassion cannot override a board’s duty to safeguard the building’s financial stability.

5. Document Everything and Anticipate Challenges

• Comprehensive documentation is what protects a board’s decision when challenged.
• Keep detailed written records of notices, meeting minutes, evidence, and resolutions.
• State the facts clearly in all resolutions. Include dates, incidents, and findings.
• The court will examine whether the board acted within its authority, for a legitimate purpose, and in good faith. Documentation is your proof that you did.

6. Litigation: The Last Resort

• Eviction should always be the board’s final step, not its first.
• Prioritize internal resolution. Respectful communication, negotiation, or mediation can often resolve issues faster and more peacefully.
• Keep perspective. Board members and shareholders live in the same building, so long-term relationships matter.
• Avoid “principle” battles. Decisions driven by emotion or ego violate a board’s fiduciary duty. Always act for the good of the cooperative as a whole.