Once again, a push to pass legislation requiring co-op boards to disclose their reasons 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 required 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 relationships 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 prohibited 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.”