Board Denials on the Rise Is There Anything Buyers Can Do?

As the resale value and demand for cooperative apartments increase and the supply of available

units decreases, purchasers are facing denials for admission to co-op buildings in record number. There was a time when many co-op boards concluded that if a bank had given a prospective buyer a loan, the board would consent to the sale of an apartment. Co-op boards have since become much more selective about their future neighbors.

The first concept that all sellers and prospective owners of a co-op apartment must grasp is that cooperative ownership is inherently different from that of fee ownership in which the owner has an interest in real property. Co-ops were created to promote stability in a building and accordingly, a co-op board can determine who may or may not become a shareholder. Co-ops can use the scrutiny of reviewing prospective purchasers' applications as a way of protecting the shareholders from those who do not fit the financial and social profile of a building. Unless specifically excepted with exact language in the proprietary lease, a transfer of shares to an apartment cannot take place without board consent.

The Business Judgment Rule

It has long been the recognized rule in New York State that generally a court will not question the decisions made by the board of a private corporation. This concept of non-judicial review has been referred to as the business judgment rule. New York courts have applied the business judgment rule to co-op boards, thereby granting them great discretion in deciding whether to approve or deny the sale of an apartment. Co-op board discretion has been clarified in a landmark case decided in 1990 entitled Levandusky v. One Fifth Avenue Apartment Corp. The Levandusky case set forth the following guidelines that a co-op must follow in order to withstand the judicial review of the courts: The board's actions must be (i) in furtherance of the purpose of the co-op; (ii) within the scope of its authority; and (iii) in good faith.

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4 Comments

  • Some of the most inefficient futile ways to manage financial utility in this day and age is through coop board approval. Anyone can commit to a coop and do the most irregular acts without a significant showing of the act on historical representation. There are exceptions to every rule is the world rule. Most people live on the laws of established assumptions not ignorance. Ignorance is defined by the hospitality of untotalitarian rules and regulations that represents fundamental thoroughfare. Terrorizing the deplorable circumstances of a housing market and a banking instrument.
  • This article highlights the power and discretion of a coop board in deciding whom to accept or reject. Ive seen cases where the Board reversed themselves at closing for reasons that seemed crazy, but were upheld.
  • This is a license for DISCRIMINATION if I ever seen one
  • disgruntled shareholder on Tuesday, June 09, 2015 3:35 PM
    After 3 buyer rejections, within 5 years for my LeHavre "hard to sell" apartment in Queens, I honestly believe that as long as a Coop Board doesn't have to reveal the reason for rejection, there will always be DISCRIMINATION! Based on their unfair assumptions, the also reject buyers. This law has to be CHANGED! The power goes to their heads!!!