The CO-OP Board refused to approve sale of the coop

I'm not sure I understand -- did they reject the potential buyer of your client's apartment? Did they actually tell you that the price is too low and that is their reason for rejecting the buyer? Are you the client's lawyer or broker? What does the lawyer say?

Also, doesn't someone on the Board need to step down if they are selling their apartment (since it is a conflict of interest)?

Posted by: guest at March 11, 2008 8:05 AM

ah the joys of the new york co-op system..

Posted by: guest at March 11, 2008 8:14 AM

Hi,

I would check with the lawyer about the conflict of interest. In our coop, everyone stepped down when they put their place for sale. I believe it's because the board member needs to be working in the coop's best interests and if they are selling, obviously, it's a conflict of interest. Worth checking into if it's legal.

Unfortunately, if they didn't give anything as the reason, not sure you can do anything about this particular decision. However, if they are giving you the hint that it is about the price, that of course sucks that they would do it from your client's perspective. From their perspective, I guess they're trying to preserve the value of their apartments, but it's terrible that they have that much power.

We had our buyer rejected by our board and it's a terrible feeling, but we dealt with it and just ended up doing whatever we thought they wanted so that we can get out of there and move on with our lives. Good luck!

Posted by: guest at March 11, 2008 8:21 AM

Did the board know how much you were asking when you were trying to sell? Did anyone way anything at that time (good or bad?). The law requires that if someone is rejected by a coop they must be given something in writing. If it's anything else besides financial reasons then this could make the board liable and open up a can of worms for lawsuts and trouble. You state that you aren't sure if the reason is the price but that someone approached you...it does sound odd. I know w/ condos they have the right of first refusal BUT if they refuse, based on the price usually, then they have to purchase it themselves at or better than the price on the table. there has to be some sort of recourse by both you and the buyer. speak with an attorney.

Posted by: guest at March 11, 2008 8:46 AM

Good reason why coops can get you in serious trouble.

You are in debt, have an emergency, medical bills, whatever and the coop decides to takes its slow ass, self interested time approving your buyer. No hope for a quick sale, it is a long painful process that could leave you in foreclosure and bankrupt in the long-run.

I think people do not realize that when they buy a coop they are giving up a significant right to their property. You are not buying an apartment you are buying into a corporation that leases your apartment to you with strings attached.

Of course, coops are not all bad and have some very significant benefits as well, but keep all possible pitfalls in mind when considering one.

Posted by: guest at March 11, 2008 9:21 AM

8:46---To the best of my knowledge, although there's been a proposal to make co-ops provide reasons for rejection, there is no law on this subject yet.

Likewise, I don't believe that there's any legal requirement for Board members to resign their positions if they are selling their apartments. They can't vote on acceptance/rejection of the buyers because of the conflict of interest, but they don't have to give up their seat. In fact, based on the operating documents, they might not even have to resign after they sell. I once lived in a co-op where board members did not have to be shareholders or building residents, just US citizens.

Posted by: guest at March 11, 2008 9:59 AM

It sounds to me you have a great case for lawsuit. You started selling with the right price. You had three Brokers involved. You can proof that you did everything you can to sell the place for the right price. Your place is on the market since August and it sounds like this is the best you can get as per your reasonable judgment.
I also smell self dealing…You might want to contact the Board directly before getting lawyers involved…That could solve the problem if you explain everything from your point of view and save the time and effort…Most of the Board will listen what you have to say…
Good luck!

Posted by: guest at March 11, 2008 11:14 AM

You say the board gave your client evidence of 2 other offers on places in the building as examples of what would be an appropriate price. Why didn't your clients place get such offers if you've had it on the market since august? You make no sense.

The board has the right to reject low sales and actually has a fiduciary obligation to remaining shareholders to do so. If your client might foreclose over a slow sale that's their own fault not the boards.

Posted by: guest at March 11, 2008 11:50 AM

"It sounds to me you have a great case for lawsuit"

What would be the damages? How is the client injured?

What loss did the owner sustain? They can still sell the apartment, the board will not allow them sell for too cheap-they are doing a favor to everyone in the building. Yes it sucks, but thems the coop breaks.

Posted by: guest at March 11, 2008 12:00 PM

coops sell at a discount to condos because of this ridiculousness

Posted by: guest at March 11, 2008 1:04 PM

"A conflict would only arise if a board member was directly interested in the approval of the sale or non-sale of an apartment (i.e. if they were a seller, buyer, bidder, or broker of the apartment)."

Emigre, that's exactly what the OP said, that members of the coop board ARE about to sell their apartments. If members of the coop board are planning on selling their apartments soon and they want to make sure their apartments (which are in different locations in the building, in different condition, and all sorts of factors that make this apartment's price different from theirs) get a higher price than this and it can be proven that is the reason the OP client's buyer was rejected, no other reason, then yes this coop board could be sued for conflict of interest.

If they can't be sued for THAT, jeezus, literally nobody should ever buy a coop apartment ever again. There has to be something that protects the shareholders who want to sell. This would make it seem the coop board is all-powerful and the rights of rest of the shareholders mean nothing. How terrifying is that?

Posted by: guest at March 11, 2008 1:44 PM

Emigre -- why does the board have a duty to maximize sale price per share? The board's duty is set forth in the by-laws, and usually it is to protect the operations and financial health of the coop -- which would come before maximizing the exit price for a shareholder. thus, it would be eminently reasonable to reject a higher offer with shaky financials for a lower offer with solid financials.

Posted by: guest at March 11, 2008 1:51 PM

1:51 is exactly right. It is more common for a coop board to choose the lower offer with solid financials.

Posted by: guest at March 11, 2008 1:55 PM

Get a consultation with a lawyer. At the least the lawyer if he thinks there could be a case, would write a letter to the coop board's attorney (coop buildings have attorneys) describing what happened and saying the sellers may take legal action. It might be all that has to be done if the coop board attorney tells the board "knock it off and approve this sale". It's very possible the coop attorney had no idea this happened and that he has a rogue coop board pulling stupid stuff.

Posted by: guest at March 11, 2008 2:00 PM

1:44- "This would make it seem the coop board is all-powerful and the rights of rest of the shareholders mean nothing. How terrifying is that?"

See 1:04 and 9:47.

Posted by: guest at March 11, 2008 2:54 PM

As a coop board member I have always opposed rejecting sales on the basis that the price is too low. This policy is counter-productive. It holds up a sale and results in an excess supply which further lowers property values. Coops should realize that it is better to have a new owner who got a good deal, than to have a backlog of owners unable to sell who are miserable about living in a place that they can't escape from. The board members who are trying to sell will have a hard time getting their high price if there is a glut of apartments from their building on the market.

Posted by: guest at March 11, 2008 3:29 PM

Emigre -- 1:51 here. I am familiar with the BJR and was not questioning whether the decision (even one that is counter-intuitive) violated it. Rather,you were the one who wrote that the board had "a duty to maximize sales price per share." I was just asking if you have any authority for the imposition of a purported duty that would very often be violated by boards that (in the exercise of their judgment) choose an offer that was lower than the highest price offered to the shareholder.

Posted by: guest at March 11, 2008 3:51 PM

I own a coop and a minimum price is set for all sales. Unfortunately, many people are unable to sell at the minimum set right now and stuck in a very undesirable position.

Posted by: guest at March 11, 2008 4:21 PM

OK. In your case it is very clear. If shareholders do not know the minimum price, then what? They stuck with anything that Board decides? If they are not aware of minimum price like in this case, what should they do if they get rejected?

Posted by: guest at March 11, 2008 4:42 PM

But Emigre, what they consider "adverse" is subjective. It's informed by their own personal needs and future plans to sell.

How is a good offer with solid financials after weeks on the market in a recession something that will have an "adverse impact on the market value"??

How about listing at an unattainable price and letting it sit and rot forever? Kind of has an adverse impact doesn't it?

These coop boards are insane and it's the worst idea ever to reject offers right now. THEY on the boards and other shareholders chose to buy in that building and there's nothing that should shield them from whatever financial risk any of us take on when buying a place. Yes sometimes the market takes a hit and people can't sell for as high as before. Be a f-ing grown adult and DEAL WITH IT.

Whiney control-freak babies with huge entitlement issues. I am so so so so so so glad we did not encounter these problems when selling our coop and I am so so so so glad we got out of coop ownership.

The more people hear about nightmares like this for people trying desperately to sell coop apartments during this recession, the less and less appealing coops will be for buyers in the future. It's so shortsighted and idiotic.

Posted by: guest at March 11, 2008 7:16 PM

To the OP broker: forget the legal stuff - it won't work. The board may be stupid to reject an apartment in not-great-condition for such a reason in this market, but that is legally their right.

Instead, advise your client to make the place look better - a few cheap fix-ups (it isn't likely so bad that a full-scale renovation is needed) - some paint where needed (white will work best), floor sanding and poly if needed, even a refresher in kitchen or bath that falls short of renovation can make a big difference (replace crummy vanity with new pedestal sink; replace worn countertop, new doors on cabinets, or paint them, new kitchen flooring material if worn, etc.)

Then move some furniture out so it looks spacious, move out all the clutter, and clean really well, and your next offers will be higher. I don't understand why people don't do this anyway to get the best profit - it doesn't cost much.

Another happy-to-be-out, never-will-own-a-coop-again reader.

Posted by: guest at March 11, 2008 10:53 PM

I am inserting a part of the article from the Cooperative Magazine.

How Low Can You Go?
Can The Board Set Minimum Selling Prices?
By Barbara Dershowit

In June 1992, the board of directors of a 160-unit co-op in Port Chester, New York made the same decision that countless

boards have made before and since: They rejected the proposed sale of an apartment within their property. However, in this case, shareholder Dorothy Tomaskovic Oakley took the board to court, claiming breach of contract, breach of fiduciary responsibility and intentional interference with contract.

At the center of the board's rejection was the fact that Oakley's proposed selling price of $37,500 was more than ten percent below the $49,000 minimum sales price the board had established for units comparable to Oakley's. Although the board apparently set this minimum price policy in an attempt to protect the value of the property, Westchester Supreme Court Justice Donald N. Silverman ruled in May 1995 that the board's floor-price policy is outside the scope of a board's authority, that it represents an unreasonable restraint on the transfer of apartments, and that it is an exception to a board's generally broad right of approval. Judge Silverman further held that the board had exceeded its authority because the property's shareholders had neither been allowed to vote on the minimum sales price resolution, nor had been given prior notice of the board's intention to establish such a policy.

Posted by: guest at March 12, 2008 7:41 AM

That article is about setting a FLOOR, not about price-based rejections in general. And it's setting a floor the court said was beyond the board's powers. I also see the breach of fiduciary reponsibility claim - the seller of the apartment IS a shareholder too and the board is supposed to represent that seller's interests too not just the rest of the building.

Emigre, you find a way to be on the side of the board every time. You clearly sit on a coop board yourself! Which is okay and it's good to hear that perspective. But just like the OP's client's coop board you have an agenda. You obviously don't want to see coop board's powers limited in any way.

Posted by: guest at March 12, 2008 1:58 PM

Agree!!!

Posted by: guest at March 12, 2008 2:44 PM

I went thru a similar situation as the buyer and wrote to the real estate editor of the NY Times. Here's the Q&A:

Co-op Board Rejecting a Sale
http://query.nytimes.com/gst/fullpage.html?res=9D0CE1DD1F3EF93AA15755C0A961958260&sec=&spon=&partner=permalink&exprod=permalink

Posted by: guest at March 13, 2008 6:01 PM

Well, I wouldn't take that article as the last word - it's 11 years old! Even the real estate attorneys quoted in recent Times articles sometimes state the law wrong.

But even if a review of the current law by a knowledgable attorney (not just one looking for fees from you) said you could sue, there's the law, and there's practicality.

Is your client's goal to spend years in litigation with the board, or to fix up the apartment enough to get it sold at a price the coop board will approve? The second is likely to be faster (and cheaper than attorneys fees.)

An attorney.

Posted by: guest at March 14, 2008 1:13 AM