Historical sales data shows that over long periods of time, the assumption is indeed correct.  With rare exceptions, price and value rise over time.  That’s not to say that over shorter intervals we don’t see more fluctuation, with prices dipping temporarily, then rising again. In some markets, that is exactly what we are seeing today.

The Co-op Conundrum

Unlike their condo counterparts, co-op boards have substantial input into the sale of the shares - and by extension, apartments - in their buildings. Co-op boards cannot discriminate on the basis of race, ethnicity, religion, marital status, and a plethora of other protected characteristics. They must make their decisions based almost exclusively on a purchaser’s ability to meet the financial requirements of the co-op, and their ability to pay their fair share of maintenance and assessments over time. 

But what if a shareholder, for whatever reason, attempts to sell their unit at a steep discount - or at least significantly below market rate for comparable units in the building and surrounding neighborhood? Such a move could negatively impact the value (real or perceived) of other units in the building. In such a situation, can the co-op board protect the perceived value of their shares and hold the line against short-term fluctuations in prices by setting a minimum or arbitrary purchase price for units? Can it set a floor for price reductions?

Hal Coopersmith, a partner with the Manhattan-based law firm of Coopersmith & Coopersmith provides some insight into this question. “With regards to the sales process,” he says, “case law has indicated that, despite the business judgment rule BJR, co-op boards may not unreasonably restrain an owner’s ability to sell their property.” Arbitrary minimum prices, he explains, came into focus in the recent decision in the case of Stromberg v. East River Housing Corporation.

The Case

“In this case,” explains Coopersmith, “the plaintiff shareholders at 577 Grand Street, Eleanor Stromberg and Douglas Price, sued their co-op, East River Housing Corporation, claiming that the co-op improperly and arbitrarily refused consent to a proposed sale of the plaintiffs' apartment. In January 2022, the plaintiffs entered into contract with a buyer to sell their apartment for $520,000 based on an appraisal conducted by a third party, which valued the property at $525,000. They then submitted the purchaser’s application for the sale of the unit to the co-op board for review.” 

According to Coopersmith, the board rejected the application on the grounds that the agreed-upon purchase price was too low. The plaintiffs appealed the decision, but the appeal was also rejected. “The plaintiffs and their buyer then amended the contract to increase the purchase price from $520,000 to $540,000,” says Coopersmith, “[But] the application was again rejected on the grounds that the purchase price was still too low, and the board indicated that it would not approve a sale for less than $600,000. Ultimately, the purchaser canceled the contract after the board failed to consent to the sale within a reasonable period of time, and the plaintiffs then sued [the board] for breach of contract and breach of fiduciary duty.”

The Takeaway

“Both parties sought summary judgment on the matter based on various claims and counterclaims,” notes Coopersmith. “The Court found that there was a material dispute of fact as to whether the co-op denied the sales application for being below an arbitrary price floor - a ground for denial that the court indicated would not be shielded by the business judgment rule.”

The word ‘arbitrary’ is key here. While the business judgment rule generally protects and upholds a co-op board’s decisions, it does so only insofar as those decisions are made in good faith, within the framework laid out by the law, and by the cooperative corporation’s own governing documents. Co-op prices, much like the price of eggs, will rise and fall; that’s part of the risk involved with ownership. The intricacies and mysteries of the real estate market cannot be removed by sheer will - and in order to be protected from legal liability by the business judgment rule, boards must make decisions that are fair, transparent, and based on documents and facts - not on vibes.