Page 6 - CooperatorNews July 2021

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Proposed Legislation Seeks to Increase Transparency in Co-op Denials
It’s Not Us...it’s You
BY A J SIDRANSKY
Local Law 97 and Related Filings
Noncompliance Is Not an Option
BY COOPER SMITH
Once again, a push to pass legislation requiring co-op boards to disclose their rea-
sons for rejecting would-be shareholders is afoot in the New York State Senate. The bill
is sponsored by housing committee chairman Brian Kavanagh, a Democrat representing
the 26th senatorial district, which covers lower Manhattan and some neighborhoods in
northwest Brooklyn. The new rules would require that co-op boards provide a written
explanation for turning down an applicant wishing to purchase shares in their building.
Basis for Denial
It may surprise some to know that currently, boards aren’t required to provide any such
explanation. They can reject a prospective buyer for no reason — or any reason, so long as
it’s not discriminatory or otherwise of bad faith.
“A board can reject a buyer for many reasons,” says Dennis Greenstein, a partner at
Manhattan-based law firm Seyfarth Shaw. “The most common reason is financial. Many
buildings may also reject purchasers who are buying a unit as a pied-a-terre, or who may
wish to have their college-aged children occupy it.”
With an eye toward promoting long-term ownership and primary residency, co-op
boards seek stability. As members of a cooperative corporation, shareholders may be re-
quired to shoulder occasional capital expenses. Boards want to feel certain that when
those expenses come up and shareholders are called up to contribute — usually in the
form of an assessment — they have the wherewithal to cover their share. Along those
same lines, many co-op communities want to promote just that: community. They want
owners who occupy their apartments full time, rather than seasonally, or as a crash pad
whenever they happen to be town, or worse yet, as a rental property with a revolving door
of tenants and their guests. Being majority owner-occupied promotes a feeling of pride of
ownership, and encourages accountability to the community that more tenuous relation-
ships simply don’t.
Philip Simpson, an attorney with Robinson Brog, a firm also based in New York, points
out that, “Co-op boards can reject prospective purchasers for any reason that is not pro-
hibited by the discrimination statutes. Financial ability is probably the most common.”
Simpson says he’s seen a new trend in board denials recently. “I have seen denials, or
issues raised, when the board views the purchase price as too low. A low purchase price
will affect values throughout the building, because it will become a comparable sale the
next time an apartment comes on the market, or someone wants to refinance their unit’s
mortgage. The ‘price-is-too-low’ is generally viewed as a legal reason to reject a sale.”
License to Discriminate?
The stated reason for the new legislation is to prevent discrimination — and while
certainly no ethical person would object to that goal, some industry groups and individu-
als have questioned whether the bill will accomplish that, or whether it’s the best way of
doing so.
Simpson says in fact, “New York City presently has the broadest scope of protection for
groups of people against whom co-op boards might discriminate.” While a buyer who’s
been turned down for a co-op purchase might have a tough time proving that the rejec-
tion was discriminatory if the board isn’t required to state its reason for it, Simpson points
out that “If a prospective purchaser in a protected class is turned down and sues, the co-op
continued on page 14
With filings for Local Law 97 and other related energy and environmental regulations
looming, many co-op and condo boards may have questions about completing the filings
properly and on schedule. While it’s best — crucial, in fact — that you get professional
input on this to avoid running afoul of the law, here’s a few things you need to know:
Who’s in Charge?
“When it comes to annual filing for compliance with any local law,” says Matt Cebula,
director of energy services at AKAM Management, a national real estate management
firm that specializes in residential communities, “management handles all aspects of com-
pliance as part of management services. If, for some reason, filings of this type happen to
be outside of your management company’s scope, the best course of action to take would
be to engage a professional energy consultant to help your property with the process.
Another great resource is the NYC Accelerator, a program launched by the New York City
Mayor’s Office of Sustainability, which provides free guidance on making energy-saving
changes as well as advisory services to help you understand and ensure your compliance
with local laws.”
Give Notice
Management should keep board members informed throughout the whole process and
communicate in real time — especially in the event of a problem, explains Cebula. Last
year, in advance of letter grades going up, AKAM informed board members of what their
expected letter grades would be. If you have full time management, your board should
request that management provide preliminary expectations. Cebula suggests this year
will be interesting, because most property grades will be higher than last year — thanks
to the pandemic shutting down many amenities, many residents fleeing to second homes,
leases expiring, etc. He says they’ve already seen an increase in scores, which in turn will
be reflected in upcoming letter grades to be posted in October.
Schedules & Filings
Annual filings for Local Law 97 will begin in a few years. In the meantime, there are
other related filings which are due shortly. “If your building’s 2018 calendar year emis-
sions are more than 40% above the 2024 caps due to a special circumstance in your build-
ing, the property may be eligible for an adjustment of allowable emissions,” says Cebula.
“The application for this type of adjustment is due by June 30, 2021. We strongly encour-
age building owners to consult a registered design professional regarding their eligibility
for these adjustments. Applications for buildings not eligible for this adjustment are due
by July 21, 2021”
Local Law 97 requires buildings to start meeting greenhouse gas emissions caps in
2024 and to begin reporting their compliance the following year and every year thereafter.
Earlier this spring the City announced that the start date for compliance is June 1, 2025.
The year 2025 is really the crucial year where the financial implications kick in.
Every year, property owners must submit the past year’s consumption data for their
properties to see how they are progressing towards mandated energy goals. Analyzing
and submitting this data helps determine if a building must significantly reduce emissions
or if it is already under required 2025 and 2030 benchmarks. Importantly, Cebula notes
that AKAM is “advising clients and board members not to rely on 2020 data, and instead
refer to their 2019 data as a true baseline to determine the path forward, knowing that the
2020 data is flawed due the pandemic’s effect.”
Cebula also points out that many co-op and condominium properties have ground
floor commercial spaces and that “It’s important to ensure you have the correct descrip-
tion for your property, especially when it comes to mixed use and commercial spaces
specifically. If the commercial area has an operational purpose, it’s vital to disclose what
that is, as it affects your overall grade — for instance, if there was a large grocery store on
the ground floor, that must be accounted for because its energy usage would vary and be
higher than, say, having a bank on your ground floor.”
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