Q&A: Can Board Reconsider after Signing Sales Contract?

Q Our cooperative board has approved a buyer for one of our units. The seller and  prospective buyer have already gone to contract. There are presently a number  of board members who have second thoughts about approving the buyer and would  like the board to re-vote. Can the board reconsider their approval after a  contract has been signed? If so, what is the risk? In general, until what point  can a board reconsider and is there a difference if the reason is financial or  character-based?  

 —Having Second Thoughts  

A “A board can certainly reconsider a previously-granted approval if relevant facts  are first learned after such approval is granted,” says attorney Aaron Shmulewitz with the Manhattan-based law firm of Belkin  Burden Wenig & Goldman, LLP. “However, absent such very unusual circumstances, an approval should not be  reconsidered based on ‘second thoughts’ if the approval has already been communicated to the parties. It would make no  difference whether the reasons are financial or otherwise.  

 “Once such an approval is communicated to the parties, it sets into motion a  chain of events based on the parties’ reliance thereon. The seller may have moved forward with plans (or signed a  contract) to purchase a new residence elsewhere, the purchaser may similarly  have proceeded to sell his/her current residence and/or incurred expenses in  connection with financing for the apartment at issue. Should the board ‘reconsider,’ the corporation and its individual directors may be liable for damages to both  parties in connection with each of the foregoing items.  

 “In short, a board should deliberate carefully and thoughtfully in reaching a  decision on a prospective purchaser, because, once such decision is  communicated to the parties, absent newly-discovered facts the board cannot  retract the decision without incurring potential liability to both parties.”    n

 

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