Q Is it true that the board can deny a refinancing application and not give a reason? Does a reason need to be provided on request?

—Inquisitive Owner

A “Assuming that the proprietary lease for the particular cooperative housing corporation does not permit the unfettered right to finance/refinance the shares and related proprietary lease to an apartment,” says partner Ronald B. Kremnitzer of the New York-based law firm of Pryor Cashman, “if the board of a cooperative determines, in good faith, that it is in the interest of the cooperative to deny a refinancing application, it has the authority to do so and the board would not be required to give a reason for such rejection, even if it was specifically requested to do so.

“Under the oft-cited New York Court of Appeals 1990 decision in Levandusky v. One Fifth Avenue Apartment Corporation, the Court held that the board of directors of a cooperative housing corporation or condominium would not be in breach of its fiduciary duties if there was a good business justification for its actions—the “business judgment rule.”

“The Court stated that, “So long as the board acts for the purposes of the cooperative, within the scope of its authority and in good faith, courts will not substitute their judgment for the board’s.” However, a board of a cooperative would not have the right to act in a discriminatory manner or in bad faith.

“Notwithstanding attempts to pass legislation that would require boards of cooperatives to state specific reasons for certain matters, such as a rejection of a potential applicant seeking to purchase an apartment, there is currently no requirement for a co-op board to state its reasons. In fact, boards are routinely advised by the building’s attorneys not to give any reason for its decisions, as that could potentially open up the board and the building to a lawsuit by the aggrieved party. Board members are even typically cautioned not to “discuss” by email exchange any matters that could be deemed sensitive, in part so as to not provide an evidentiary trail of the board’s reasoning.”