In June 1992, the board of directors of a 160-unit co-op in Port Chester, New York made the same decision that countless
boards have made before and since: They rejected the proposed sale of an apartment within their property. However, in this case, shareholder Dorothy Tomaskovic Oakley took the board to court, claiming breach of contract, breach of fiduciary responsibility and intentional interference with contract.
At the center of the board's rejection was the fact that Oakley's proposed selling price of $37,500 was more than ten percent below the $49,000 minimum sales price the board had established for units comparable to Oakley's. Although the board apparently set this minimum price policy in an attempt to protect the value of the property, Westchester Supreme Court Justice Donald N. Silverman ruled in May 1995 that the board's floor-price policy is outside the scope of a board's authority, that it represents an unreasonable restraint on the transfer of apartments, and that it is an exception to a board's generally broad right of approval. Judge Silverman further held that the board had exceeded its authority because the property's shareholders had neither been allowed to vote on the minimum sales price resolution, nor had been given prior notice of the board's intention to establish such a policy.
The Oakley v. Longview Owners, Inc. case raises salient issues about the limits of board authority with regard to protecting the market value of a building's units. Although the Oakley case was a trial court decision and therefore not a binding precedent on any other co-op, boards should ask themselves whether such a policy can be enacted, should be instituted and if so, whether it is beneficial for the building as a whole.
Are Price Floors Good Policy