When a Board rejects a sale based on price...

Great question. I am curious to see how people respond.

After telling a broker what I thought would be a fair price for an apartment that requires huge rennovations, the broker told me that the Board of that building would never pass me at that price, even if the seller agreed.

Coop boards function largely to protect those who live there--not those who are leaving or coming. They owe a fiduciary duty--a duty of the very highest care and loyalty--to THE CORPORATION. The seller knew this when he got into bed with a coop and now complaining about it as if shocked is disingenuous. The question posed ("Does the Board expect him to keep paying his maintenance forever...") is, I assume, hyperbole. The seller needn't pay his maintenance one minute after presenting the board with a qualified buyer and acceptable proposed sale. But you can't go and sell a unit for $1 to unload it and screw everyone in the building in terms of comparables.

What the OP thought was a fair price apparently was not such a fair offer in the Board's view. If it was borderline and the market overall continues to deteriorate, then such an offer may become acceptable.

Realize the downside for all tenants with sales that are too low. Tenant who possess 5 and 7 year ARMS that are coming due and who must refinance, will need appraisals done to get new loans. If the recent sales are just ridiculously low, those are the comps the appraisers look at and the refinancing shareholders won't get sufficiently large new loans. The board described in this post is not insane. They may be acting more slowly to accept new market conditions than the seller and buyer would like, but that'll change--on the board's time table, not on the sellers. That's part of being in a coop.

Co-op Board Rejecting a Sale

http://query.nytimes.com/gst/fullpage.html?res=9D0CE1DD1F3EF93AA15755C0A961958260&sec=&spon=&partner=permalink&exprod=permalink

kylewest - I started to respond, but yours was much better...well said!

Fortunatly kylewest response is wrong in law - property rights trump co-op rights. If a co-op tries this, and you sue, the co-op will be left to prove that it was not the price that influenced their decision, rather than hide behind another reason, or even no reason.

If it were me, I would sue. Co-op boards do not have the power to set market prices, and if they believe they are "protecting the interests of the corporation," they are wrong.

kylewest is also wrong. Such actions by the board are illegal.

"supposedly based on the [low] price" . . . it's very unusual for Boards to disclose reasons for their approval decisions -- it's usually pass/fail and that's that. Who is doing the supposing here?

I wasn't even looking to buy the place... I went to an OH, and it was listed at 350K (I think). I asked the broker if it was previously listed at 300K, and she said "yes, and there was an accepted offer, but the Board would not allow the sale at that price". Or, something very close to that.
I invented the angle of a seller low on cash who needed to move, but what if that were the case here?

In the case that I was referring to, the seller IS low on cash and is no longer living in the apartment.

BA DA BOOM and STEVE: You say a coop cannot decline a sale because the price is too low, but I can't find the actual legal authority that says that in this specific context (I'm not talking about some general anti-trust or price-fixing act that can be extrapolated to apply here--I'm talking actual regulations or court decision not open to interpretation). Can you steer me to any legal authority for your conclusions? They were pretty unqualified so I imagine you know something here I can't find. I ask this sincerely--not in a snarky way as I too often do. I cannot find the support for the proposition that a board can't reject a particular sale because the sale price in that situation at that time seems too low.

I see at least one trial court case (Oakley v. Longview Owners, Inc., West. Cty. 1995) which is not binding on any other court and not terribly persuasive. It is also fairly readily distinguishable and thus limited. It focused on a board's having enacted a fixed policy that barred sales that were 10% lower than last sale--or something like that. The question was whether setting such a floor for a sale price as a policy was within the board's power. The trial court ruled against the board. Short of enacting an articulated policy, though, I don't see this decision as having much impact or precedential value. It is a cautionary note--nothing more.

But regardless Steve, et al, let's stay grounded in the real world. No one buying a $350K unit is suing. Know what that would cost? Know what the odds of winning are? Board's don't give reasons for rejections and don't leave paper trails. If a board member votes "no" they may not even be aware themselves of the extent to which the proposed sale price influenced his/her vote. They'll no doubt--if called upon to state a reason--find another.

In the real world, boards can operate with virtual impunity. Outright prejudice and discrimination is barred, but even that is extremely difficult to effectively monitor.

Educate me though. What laws, if any, specifically relating to this question are you referring to?

Follow the link - it's case law.

Marine Midland Bank v. White Oak Cooperative Housing Corp.

Board cannot reject for a "bad" reason, but can reject for no reason at all. I'm sure formally the Board would not provide the reason. I'm not aware of low price being a "bad" reason. The classic example of a "bad" reason is discrimination, and as Kyle said, that is hard to monitor.

There is a reason that coops are priced at a discount to condos -- you have to deal with coop boards that can seriously hurt you both while you are living in the building and especially when you are looking to sell.

I think a seller in this situation needs to make nice to the board and try to work something out -- maybe show the board comps from other buildings and other data showing that the price is not unreasonable. If default is a real risk, the board does not want that either so might be willing to be flexible in allowing a sale or sublet.

Stevejhx - I just read the Westchester County Supreme Court decision you cited. Aside from not being at all binding in New York City, nowhere does the decision actually state that a co-op is barred from rejecting a prospective purchaser because the proposed sale price is too low.

Kylewest - what's up?

Steve, I can't find the case you refer to. Do you have a case citation or perhaps different case name? No case appears with "Marine" and "White Oak" that I can find.

From my time on a board I can tell you that boards are not likely to tell you the reason for the rejection, but that it can be surmised pretty well lots of the time. I can also tell you that rejection because the price is too low is not an illegal reason. To help that, it might be good to provide the board with reasons that the price is an anomaly and could be excluded from comps, but an open market sale would be hard to allege into that one.

One thing that would concern me if I were on a board today is that, in rejecting a sale price now because it was too low, would the board become liable for the difference between that price and the even lower price coming down the road. Though a legal rejection, boards (most) are gunshy about being sued, both because it looks bad to their constituency and because it costs money for lawyers that the shareholders get all upset about down the road.

It is a New York Law Journal case - so it may be difficult to find using a search. This is taken from a Condo treatise, though:

Price of Unit

The property law prohibition against unreasonable restraints on alienation was used to invalidate a floor-price for sales of cooperative units. Oakley v. Longview Owners, Inc., 165 Misc. 2d 192, 628 N.Y.S.2d 468 (Sup. Ct. 1995). In that case, the board adopted a resolution whereby approval of sales would be withheld for amounts more than 10 percent below the appraisal based value of the one and two bedroom units. The board had established such values based on appraisals of two units which it had obtained. The court conclude that the board, as a matter of law, did not have the authority to adopt the particular floor-price resolution, because it constituted a unreasonable restraint--i.e., an effective prohibition against transferability itself. The court explained:

Here, the restraint is dependent upon real estate market forces that are beyond the control of either party. While this may merely postpone the sale of the shares pending an upturn in the market, the restraint constitutes an open ended and potentially long lasting prohibition.

Id., 628 N.Y.S.2d at 470.

Similarly, in Marine Midland Bank v. White Oak Cooperative Housing Corp., NYLJ, March 19, 1997, at 31 col. 5 (Sup. Ct. Westchester Co.), the court ruled that a requirement that a unit owner must sell at a price set by the cooperative housing corporation, and to be approved by the corporation, was unenforceable as an unreasonable restraint on alienation.

The claim that a resale restriction is an unreasonable restraint on alienation was also raised in Buttitta v. Greenwich House Co-op. Apartments, Inc., 11 A.D.3d 250, 783 N.Y.S.2d 26 (1st Dep't 2004). That case involved a by-law provision requiring prospective sellers of units to first offer the stock to the cooperative at a below market price. The court, however, did not reach the question of the enforceability of this restriction. It concluded the plaintiffs were precluded from challenging the by-law because they ratified it by their votes at shareholder meetings where the right was asserted against other sellers in the cooperative. The plaintiffs alternatively claimed the board acted improperly in enforcing the restriction by treating them differently than other withdrawing shareholders. The court did not reach this issue either because it found the claim was barred by the four-month limitations period in C.P.L.R. § 217

In Levine v. Yokell, 245 A.D.2d 138, 665 N.Y.S.2d 962 (1st Dep't 1997), however, the court dismissed an action brought by a prospective purchaser against a cooperative corporation and its directors for tortious interference with contractual relations. The claim was that the board refused to consent to the sale because the purchase price was too low and would devalue the directors' own apartments. The lower court noted that an action for tortious interference with contract requires an unjustified intent to harm. In this case the allegation was that defendants' actions were based on economic considerations, which would not satisfy this intent requirement. The appellate court affirmed. It noted that the only alleged interference was the refusal to approve the application to purchase, a contingency specifically contemplated in the contract of sale.

Some requirements imposed by the cooperative corporation's board might be deemed indirect restraints on alienation. One factual situation that has arisen is a requirement that the purchaser pay certain sums as a prerequisite to a transfer of title by the cooperative. The issue that has been raised, initially, in these situations is whether the board had the power to insist on the payment(s) in question. In In re Estate of Schiller, 12 Misc. 3d 1160(A), 819 N.Y.S.2d 213 (Sur. Ct. New York Co. 2006), the cooperative demanded payment for damage to the building allegedly due to the decedent-seller's negligence in causing a fire in the building prior to the closing of title to such unit. The proprietary lease provided that no assignment shall take effect until "all sums due" from the lessee shall be paid to the cooperative corporation. The court interpreted this provision as requiring payment only of liquidated claims and not claims that are unproved, unsettled, and unadjudicated.

In a similar vein, in Lisenenkov v. Kaszirer, 41 A.D.3d 282, 838 N.Y.S.2d 545 (1st Dep't 2007), the board of managers of a condominium demanded prior payment by the purchaser of two years of common charges because it was concerned about the purchaser's finances. The court concluded that the board had the right to seek financial information from the purchaser but not the right to demand advance payment of common charges. In doing so the court affirmed the lower court's decision in Lisenenkov v. Kaszirer, 13 Misc. 3d 1184, 827 N.Y.S.2d 579 (Sup. Ct. New York Co. 2006), order aff'd, 41 A.D.3d 282, 838 N.Y.S.2d 545 (1st Dep't 2007).

Kylewest - don't bother. The case does not stand for anyting close to the proposition for which Steve cites it. Moreover, as I mentioned, the case is not binding on any NYC Court.
If you have online access to the Law Journal, you can dig it up.

Thanks, joepa.
It appears from the write up of Levine v. Yokell, 245 A.D.2d 138, 665 N.Y.S.2d 962 (1st Dep't 1997), that Steve and Badaboom are flat wrong and that Courts will not second guess a co-op's decision to reject a sale on the basis that the sale price is too low.

That's not exactly how I read Levine. I think Levine only stands for the proposition that the purchaser doesn't have standing to sue based on this rejection. The seller may.

joepa - I disagree. Based upon the squib you posted, it wouldn't seem to matter who the plaintiff is. The First Department said there is no tortious interference without "unjustified intent to harm." So it wouldn't matter which party to the (aborted) transaction sued.
Anyways, I'll read the case and report back.
But thanks for posting from the treatise - very informative.

You can't ignore the fact that in Levine, it was the purchaser who sued and the board owes no fiduciary duty to the purchaser. I'm not saying that your analysis is wrong but, whether it is the purchaser or seller who is suing can certainly matter. The Court did not (and could not) opine whether the conduct would constitute a breach of fiduciary duty against the seller.

Step back for a second.... all those folks who were surprised that 87 took 4 years to bottom..... now you starting to get it?

Steve, you misstate the law. Period. I stand by what I said. Marine Midland and Oakley do not stand for the proposition that a Board can't reject a sale because the price is too low. These decisions deal with much more narrow issues. In addition, the decisions are worthless in terms of binding precedent--every court in NYS (with the possible exception of other Westchester trial courts)--are free to visit the issue as a question of first impression.

Were one to ask if they should sue for a sale being rejected because the price was too low, your advocating a suit is highly irresponsible. It would be enormously expensive and given courts' great deference to the discretion of a coop board, success would be very questionable. All I think you could advise someone is that if they insisted on suing, these two decisions could be cited when attempting to extrapolate from them broader principles.

A little knowledge of the law is a dangerous thing. Best we stick to what we know, huh?

Just because a case is not binding on NYC Court does not mean the judgement is wrong and that an NYC court would conclude differently. The plaintiff would site it as a very strong precedent.

I agree the buyer does not have much recourse, it's the seller who is being deprived of his property (the cash from the transaction) and need to sue.

Finally, Which board-member is going stand up, and refuse to tell the judge, why they declined a sale, I suspect the judge would be likely to re-lodge him for contempt.

BA DA BOOM: if you aren't a lawyer, just stop. If you are, you really serve no one with a post like that.

Whether a plaintiff says something is "strong precedent" or not doesn't make it so. A slip opinion from an out-of-county trial court is simply not persuasive in any way. A suit in NYC would be starting from scratch. In addition, the cases don't even address the issue directly. One deals with a board that voted and approved a blanket policy barring sales that were 10% lower than the prior sales or something like that--the court found the blanket policy setting a floor unacceptable. In the other case the board itself appears to have set a specific sale price which the court said was improper. Niether situation involves the issue here: can a board reject a particular sale because in its view the sale price is too low.

I'm not going to go back and forth on this. I've posted on streeteasy for over a year. People can take my view on this or leave it, but I think I've shown myself to be a fairly reliable source of info and to possess pretty moderate and balanced views. In any event, you haven't pointed out anything I said that is incorrect.

Worthless in terms of binding precedent? Come on. I'm not advocating Steve's position here, but let's not totally dismiss this case because it is from the Westchester Supreme Court. It may not be binding, but it is persuasive.

Also - I don't know how narrow Oakley necessarily is. The decision seems pretty clear that a coop cannot set a floor-price for apartments. Whether they can reject the sale of an individual apartment or not based on price is clearly another question but I'd take on the seller's case against the coop on this one.

Also - it's not like these are cases from Podunk Iowa. These are cases from a New York Supreme Court that has concurrent jurisdiction with Supreme Courts in New York City and is interpreting the same Appellate Division cases that would be binding on New York City Courts.

First, I didn't say the Westchester cases were "worthless"--I said they are what they are and not particularly instructive or in any way binding. Second, you must be pretty hard up for work if you'd take this on. What remedy do you seek? Specific performance? The unit in question will have long been sold. Damages? How do you establish or calculate them in any convincing way? Punitive? Right--with no hard law to guide them, the Board cannot be said to have behaved so outrageously as to warrant punitive damages being assessed--especially since they were attempting to abide their fiduciary duty to the corporation. So tell me: what exactly are you suing for? And you'll make money on this representation how?...Be real. Problem on these boards is too many people bark out advice and don't think it all the way through in practical terms. Questions like "can I sue" are a start, but the real question is "should I sue?"

I'm not trying to start a fight here and I never said that you said the cases were worthless. You said they were "worthless in terms of binding precedent" and "not persuasive in any way," and that is inaccurate.

As for a suit, a declaratory judgment action deeming the board's decision improper or specific performance (if the purchaser is willing to wait it out) are both options. Bottom line - if the market won't bear the price that the board deems acceptable, the seller has no option but to sue or he'll never sell the unit. Once the board decision is overturned, money damages for the difference between the price the purchaser offered and the price it actually sells out is also an option.

board's decision won't be overturned. a lil sumthing called bizness judgment rule

If it's determined to be an unreasonable restraint on alienation, bye-bye biz judgment.

Lucid - thank you for your comments...we are strongly considering placing an offer for an apartment in a co-op that is lower than it's current listed price BUT that is fair and very much in line with the last historical comps for the same building (no sales in this building in almost 12 months - before the curent financial slowdown). We feel the listing price of the apartment that holds our interest is too high, both for this market and in comparison to the most recent sales activity in this building. In light of your experience as a coop board member, is 9% below asking price too much for a condo board to stomach, even now? Our target property is in the $750k range. Others with thoughts, please let me know...we certainly don't want to 'offend' a board, but an appraisal must reflect our offer price, right?

Sorry - a few typos and it's a COOP board, not a condo board. Too many thoughts, not a quick enough typist...

kylewest,

come on man. you say you could not get a remedy because 'the unit in question would long be sold' by the time of the judgment. really? the case is against a coop board the rejects sales because of price. if the board is rejecting the buyer how exactly do you imagine that the unit will be sold? i won't wade into the legal territory here, but i will say that coop board are absolutely out of their minds to reject buyers because the sale price is too low unless the seller is engaged in some kind of insider sale. i mean, do they imagine that the seller is not attempting to get the highest price he can?

coop board have no more control over apartment prices than sellers do. ultimately, they will have to bow to reality just as surely as sellers. the idea that they think they can protect themselves from a declining market by rejecting low sales prices is laughable.

At the price point you mention and in the current market, I don't think 9% off asking is unreasonable or "insulting" or especially problematic. All reports show the market off about 10-15% from peak already. I'd want the seller and seller's agent to do some probing here to see if anything hints can be gleaned that could tell you right off not to waste your time. But 9% isn't coming in at half or something shocking. FWIW, I've served on boards and admissions committees in coop with units at the price point you mention.

The lesson for us all, folks, is AVOID COOPS AT ALL COSTS! Especially in this market, with condo prices tumbling. Who needs the aggravation?

From what I've heard -- and I've spoken to a lot of people on this -- its pretty rare to have the coop board reject for to low a price unless its really a steal -- like 50% below recent comps from a seller that just wants out asap. If an apartment has been sitting on the market for 5-6 months and finally the seller agrees to sell 30% or so below comp, I think most coop boards would recognize that there is nothing that can be done and let the sale go through. I also think that in such a case the seller should talk with members of the coop board.

I would be very, very concerned about bidding on an apartment if you've heard things like that from a broker. You will be the seller at some point. I've walked away entirely from apartments when I thought the coop board was unreasonable. I generally like seeing younger people that "get it" on the board -- i.e. that are fine with guarantors, gifts, pets, kids, etc. It just opens up the pool of buyers and allows you to not have to deal with these and other issues.

shouldn't this be covered by right of first refusal?

if its such a steal price, let a board member buy it.

If not, sit down and shut up.

<<<>>>

Did you watch her nose to see if it grew?

From UES Buyer: "From what I've heard -- and I've spoken to a lot of people on this -- its pretty rare to have the coop board reject for to low a price unless its really a steal -- like 50% below recent comps from a seller that just wants out asap."

If Broadwayron is talking about 96 Schermerhorn, then yes: the unit in question was priced at $373/sf - nearly 50% off the most recent closed comp.

I know of more than one case when a board's rejection (probably biased and NOT related to price) was withdrawn and promptly reconsidered when the seller threaten to sue. Could there lie the reason there are so few court cases vs. co-op boards?

Tina-
Yes, it was 96 Schermerhorn. And, it's funny hearing people talk about Board members as though they're a different breed. I'm on the board where I live.

Its because the laws are written for Board members to make decisions in a covert manner. If everything is on the up and up why not disclose everything. We all know the real reason. In most cases they are either being discriminatory or have personal motives. C'mon this is New York. Its all about wink wink nod nod and lets hide behind the law that protects us from being a decent human being.

http://decisions.courts.state.ny.us/fcas/fcas_docs/2011OCT/3001022822011001SCIV.pdf

Plaintiff Chappell, Mitra won against Trump Plaza coop. This should set precedent against coop boards unreasonable sale denial decisions and price fixing attempts at the expense of financially strapped seller.

I just heard of a board turning down a sale because of price protection, and the board admitting exactly this in writing.

This happened in Brooklyn. The board sent an email to the buyer and to the seller specifically telling them they would not consider any sales in the building below a particular fixed price. They asked the buyer and seller to "work it out" to agree to a higher price, and to send a new contract, or a rider to the existing contract, to the managing agent for the board package.

Interestingly, the price on the contract was $4400 higher than a closing price on the exact same floor plan, one floor below, six months ago. The unit downstairs was in worse condition though.

The buyers refused to offer more money, and the sellers refused to enter into a shady side agreement that would rebate money to the buyers after the closing. So the apartment is back on the market.