New York Amends Its Mitchell-Lama Law

January 10, 2022 Advisory

The Governor of New York has recently signed into law changes to the Private Housing Finance Law that will affect the governance of Mitchell-Lama cooperatives significantly. The following (which affect Mitchell-Lama cooperatives only) is a summary of those changes:

  1. All voting will now be conducted using secret ballots, which must be cast in person or by an absentee ballot (see below).
  2. An absentee ballot may be requested by a shareholder. The absentee ballot must be hand delivered or mailed only to the primary residence of the shareholder.
  3. The absentee ballot shall be sealed within two envelopes, which must contain the signature of the shareholder and mailed to a neutral third party.
  4. Proxy voting is now prohibited in any election or, during the reconstitution (“going private”) process, for the authorization of a feasibility study or preparation of an offering plan.
  5. In-person ballots must “produce a paper record which may be audited in the case of a contested election result.”
  6. Under the policies of some Mitchell-Lama cooperatives, candidates for election to the board of directors may not run if they are in arrears. The new law specifies that if such a requirement exists, it may not be applied unless at the time of nomination the person owes “bona fide” arrears totaling more than two months of the person’s maintenance.
  7. The board of directors must hold at least six meetings each year, open to all shareholders and residents. However, the board may hold closed executive sessions to discuss confidential personnel issues, legal advice or confidential matters affecting shareholders or residents, or contract negotiations.
  8. A record of every board vote on every resolution must be filed with the supervisory agency, including how each director voted. Such record will be a public record.
  9. Notice must be given to all shareholders (and made available to all) of every communication to and from the supervisory agency regarding regulations (or changes thereof), taxation, finances or reconstitution.
  10. Cooperatives must investigate any substantive allegation that a tenant is not using the unit as their primary residence.
  11. Cooperatives may not interfere with the right of shareholders to form or join any organization created to protect the rights of shareholders. The board shall not deny the use of a community room to such group, nor charge them a fee for such use.

In the event a Mitchell-Lama is considering “going private” (i.e., a reconstitution), there are new, additional rules that must be followed.

  1. As noted above, no proxy voting will be permitted at any stage of reconstitution.
  2. All shareholder voting at any stage of reconstitution now requires approval of at least 80% of all dwelling units (whether occupied or not).
  3. No funds from the operating budget may be used in connection with reconstitution.
  4. If a vote at any stage of reconstitution fails, the cooperative must wait five years before holding any other vote in regard to a possible reconstitution.
  5. Finally, no steps in regard to reconstitution may be taken during the COVID state of emergency declared by the Governor.

These changes raise a number of issues. For example, requiring “secret” ballots may be interpreted by some as ballots without signatures or any designation of the dwelling unit. Yet, without such information, an audit (also required) would be impossible. Further, must the cooperative wait for an actual request for an absentee ballot, or may it send out absentee ballots to all shareholders (as proxies were sent out in the past)?

All of the provisions of the new law become effective on March 23, 2022, other than the moratorium of reconstitutions during COVID (#5 above), which is effective immediately.

We will communicate further as these and other issues are reviewed and analyzed by the supervisory agencies and the legal community.

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