Construction Law: A lawyer discusses shareholder inspections of documents in co-ops - by C. Jaye Berger

Shareholder inspections of documents can be a somewhat controversial subject in co-op buildings. The right to inspect books, minutes or records is based on a combination of state statute, the bylaws and related case law. The right to examine is during usual business hours after making a written demand. The review must be reasonably related to the person’s interest as a shareholder acting in good faith and the inspection must be for a proper purpose. However, standards such as “good faith,” and for a “proper purpose” are subjective and open to interpretation. Therefore, when a shareholder sends the managing agent a list of documents he or she wants to review, if there is a contested election taking place or some other controversial event in the building, the response to the request may be to deny all or part of it. When or if that occurs, the matter can quickly escalate to a higher level.

The right to inspect is also in the discretion of the court. This presumes that the written request has elevated to a court case. Upon refusal to permit the requested inspection, the shareholder may make a demand for inspection, pursuant to statute, to the supreme court in the judicial district where the office of the corporation is located, for an order to show cause why an order should not be granted permitting inspection by the applicant. Such motions are usually filed in a dramatic fashion, since they are served by process servers and give fairly short periods of time to respond before the hearing date.

In other words, such requests can quickly escalate from a written request to the co-op, to having a lawsuit against it. If this lawsuit results in an order requiring the co-op to produce documents and the building fails to do so, for one reason or another, it can escalate into a motion for contempt of court for failure to comply.

Therefore, before the matter blows up, usually the co-op tries to come to terms with the shareholder about what they are looking to examine and what problems there might be with compliance. For example, it might involve not wanting to produce private information of other shareholders.

Co-ops dealing with such issues should seek advice from legal counsel familiar with such issues as soon as possible. In one matter I was involved with, the situation was helped by having the documents be made available in the co-op’s business office, with the managing agent present, instead of a board member who had a history of confrontation with the shareholder.

C. Jaye Berger, Esq., is the principal of The Law Offices C. Jaye Berger, New York, N.Y.