A Mitchell-Lama Reform Bill sponsored by State Sen. Brian Kavanaugh and Manhattan Assemblywoman Linda Rosenthal has passed both Houses and now heads for Gov. Andrew Cuomo’s desk for signature.

The Bill, A.7272/S.6412, would, among other things, increase transparency among Mitchell-Lama co-op boards by requiring more board meetings to be open to shareholders, eliminate voting by proxy and raise the threshold needed to privatize.

While the Bill is being touted as being pro-shareholder, there is one unintended consequence which may hurt shareholders more than it helps – making it more difficult to reach a quorum needed to transact business at a meeting.

Shareholders can now vote either in person or by proxy. However, the Bill will eliminate voting by proxy (in most instances), and substitute voting by absentee ballots.

Proxies, like absentee ballots, can be mailed in. The Bill, however, bans collection of proxies by hand, and the Sponsors of the Bill have argued that this process is ripe with abuse. From my experience, an orchestrated attempt to collect proxies increases the likelihood of reaching a quorum. Absent this push, a quorum may never be achieved. Without a quorum, no voting may take place at the meeting.

Will absentee ballots result in more shareholders voting at a meeting than would occur if proxies are collected and the proxy holder votes as the shareholder directs? Time will tell, but in my experience, shareholders are often complacent, and without that knock on the door and request for their proxy, they may never participate at a meeting.

Most Mitchell-Lama co-op by-laws provide that directors shall serve one, two or three years, and that they will serve until their replacements are elected. If a quorum cannot be reached, their replacements may never be elected. While the Bill is meant, in theory, to provide shareholders with greater input in the direction of their co-op by allowing them to elect directors by mail, the Bill, in practice, may give shareholders less control by allowing directors to remain in place for quite some time.

Another point to consider is the cost inherent in conducting an annual meeting. Most Mitchell-Lama co-ops will engage the services of an independent third-party election company that charges a fee to prepare and mail the annual meeting package, to receive and count proxies and ballots for purpose of reaching a quorum, and to tally the votes, monitor and certify the results of the election of directors. If a quorum is not reached, HPD requires boards to “hold-open” the annual meeting for thirty days in the hope that this additional time will permit a quorum to be reached. This also obligates boards to continue the services of the election company at an additional cost. What if a quorum is not reached after this thirty-day period? How many more extensions will HPD require and at what financial cost?

If and when Bill is signed by the Governor, it may harm the very people it is intended to protect.