"Everybody Out!" Handling Closed-Door Meetings

"Everybody Out!"

That being said, there are times when information can and should be more tightly controlled, and when non-board shareholders actually don't have the legal right to certain information. Knowing when to include and when to exclude residents from the decision-making process and what kinds of information they have the right to access is an important part of any board's responsibility, and can help avoid unnecessary (and expensive) legal issues down the road.

Do Tell!

One of the most common complaints reported by shareholders and unit owners in condo buildings and HOAs is that their boards and/or managers keep them in the dark—not alerting them to upcoming work in the building or on the grounds, failing to respond to questions and complaints, and not holding regular meetings.

Board members, by contrast, may feel that as unpaid volunteers, they aren't necessarily obligated to respond personally to every email they get, or issue a press release every time the lobby gets painted. Additionally, residents may not be aware that there are sensitive matters discussed in board meetings that must be kept confidential.

According to Eric F. Frizzell, a partner with the Glen Rock-based law firm of Buckalew Frizzell & Crevina LLP, “There isn't a rule under New Jersey law requiring a community association’s board to go into what's called 'executive session.' The open meetings provisions of the Condominium Act and the Planned Real Estate Development Full Disclosure Act permits a community association's board to go into closed session at a meeting at which a binding vote will be taken only when reviewing certain topics.”

Frizzell says that those topics include things like pending or anticipated contract negotiations, litigation, matters involving attorney-client privileged discussions, anything that would constitute an invasion of privacy, and matters involving the employment, promotion, discipline or dismissal of an officer or employee. “So the board has discretion to go into closed sessions for those types of matters, at meetings that must otherwise be open because a binding vote will be taken by the board,” Frizzell says. “Boards may also hold closed conferences or working sessions on all other matters, as long as no binding votes will be taken.”

Other meeting requirements for condo and HOA boards are typically spelled out in the community's governing documents—usually in the bylaws. Some boards hold an executive session every month like clockwork; others meet bi-monthly, and others (particularly in smaller buildings) may only meet once a quarter, or more often as needed. These meetings are generally closed to non-board residents—if a unit owner wants to bring up an issue, the annual or bi-annual residents' meeting is the venue for that.

In the case of co-ops, adds Wendell A. Smith of Greenbaum Rowe Smith & Davis LLP in Iselin, “[Executive sessions] are like workshop sessions. They basically promote dialog among the board members. After the workshop session, they usually try to get a consensus as to whether they're going to move forward—but they don't vote on it until they go to open session. Some boards hold [a closed meeting] immediately prior to the open meeting. Others will hold it a week or two. It depends, but there's nothing legally mandated.”

Among those boards that do include non-board residents in meetings, the degree of openness varies, say the professionals. Some associations do allow the owners to attend the first part of the meeting as long as they're advised in advance, whereas others have closed meetings and answer any questions that owners may have separately outside of the meeting. It all depends on the language in the HOA's bylaws, as well as how the board wants to operate.

Loose Lips Sink Ships (Sometimes)

Despite the appeal an open-door, all-on-the-table policy may hold for residents, openness is not the norm for the majority of the Garden State's HOAs.

And that's not necessarily a bad thing, say the pros. In addition to the problem of sensitive information being inadvertently discussed, sometimes the old saw about too many cooks spoiling the broth holds true for the meeting process as well. Others point out that opening the floor to any and all comers can have the opposite of the desired effect: faced with all their neighbors and peers, shareholders may be afraid to express their thoughts or grievances for fear of conflict or disagreement.

According to Frizzell, buildings must weigh the benefits and drawbacks of inviting everyone to participate in meetings and decide what approach fits their community best. The practice of holding closed board meetings, he reiterates, is set forth in the bylaws or internal rules of individual buildings—not in state law. Board members are fiduciaries who have to operate with the best interest of their HOA first.

Sensitive Topics

Regardless of whether a board opts—as most do—to keep its decision-making process private or make it public, legal and management experts agree that there are some topics that simply are not the business of the general population.

“We do try to keep most things public,” says one HOA president, “except for when the discussion concerns an individual residents' personal issues—like problems with making maintenance payments, for example. Then we call a private executive session.” Most experts also agree that the names of people in arrears should be kept private so as not to air their private issues and possibly risk legal action.

According to Curt Macysyn, executive vice president of the New Jersey chapter of the Community Associations Institute (CAI-NJ), “In areas where confidentiality needs to be maintained—including personnel issues and litigation—you can't breach that with other residents. Board members must keep an appropriate level of confidentiality, and avoid discussing with residents or shareholders anything that impacts individual privacy, arrears, employment issues or any issues protected by attorney-client privilege. Those are best discussed at an executive meeting, not an open meeting, and if you have any doubt as to whether it's a conflict, discuss it with your board attorney.”

Maintaining shareholders' privacy isn't the only reason boards cite for keeping meetings off-limits to non-board residents. The potential for exposure to liability as another big reason to hold closed board meetings. Board members that discuss sensitive topics and perhaps, get sued, are protected by directors and officers insurance. However, non-board shareholders are not covered by insurance and that could lead to serious liability issues.

Approval and/or rejection of prospective buyers, and issues to do with contracts are another subject that most experts believe should be handled in a closed session. For example, if three vendors are bidding on a contract, a board member is bound by confidentiality. However, if a non-board member is at a meeting where this is being discussed, he or she could theoretically tell one of the vendors how much the other one is bidding—and that's just bad business.

Bring Them In

Open or closed, there are plenty of ways for shareholders to be involved with and stay abreast of what's going on in the boardroom. Boards can hold an open session beforehand to allow residents to raise issues and voice their views on building business. Input from non-board shareholders can solicited in other ways too—by inviting them to join committees, for example, or by surveys, “town meetings,” and even the old-fashioned suggestion box in the lobby.

That hybrid approach may offer a workable compromise between open and closed meetings. “Often a board will schedule its closed session an hour before an open board meeting occurs, and run through the items they're allowed to review in closed session,” says Frizzell. “That's how the vast majority of our associations do it. But there's nothing to preclude the board during an open session from deciding it needs to go into closed session regarding a particular matter and convening in an adjoining room or asking the people who are present to leave the room. That's rare though.”

Another board president says that his association permits non-board residents the first 15 minutes of almost every meeting to come and ask questions. “We answer them and then then announce that we have to go into executive session. We've never had an issue over it.”

Distributing minutes to residents is another way to keep them in the loop, although there are some co-ops that opt to keep them private as well. In many buildings, residents interested in seeing meeting minutes must request them from the management office, while in others the minutes—or at least a synopsis of them—are regularly distributed under residents’ doors, posted on the wall in a community room, or more commonly nowadays, by e-mail.

Along with those methods of communication are shareholder's meetings, which building bylaws almost universally require to be held annually. The more residents show up to observe and actively participate in these meetings, the better. To get people in, some buildings resort to incentives like holding raffles, or giving away theater tickets or restaurant discounts.

Do What Works

To sum up, different buildings deal with the issue of disclosure and confidentiality in different ways. Some boards like to hold an open board meeting every two or three months, or make board members' e-mail addresses available to all of the shareholders. On the other hand, other boards tend to limit what information gets out, keeping watch over e-mails they send out and other communications.

“The community should expect a level of transparency in operations,” says Macysyn, “but in certain situations there may be a need to maintain confidentiality, at least until issues are resolved. The rest is common sense.”

Raanan Geberer is a freelance writer, editor and co-op shareholder living in Manhattan.

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