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Is it discriminatory for a board to inquire about a potential buyer’s children who would be living in the apartment?
AUTHORC. Jaye Berger, Principal, Law Offices of C. Jaye Berger
Boards of directors are always being asked to review applications to purchase from potential purchasers. Every board has its own methodology and criteria for such reviews. In one case, a building I represent interviewed a young couple with a baby who wanted to purchase a studio apartment for the three of them. On the face of it, that was an unusual purchase, since usually couples living in a studio apartment sell their studio apartments to buy one-bedroom apartments when they have a baby. Here, a young family of three wanted to move into a studio apartment.
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BACKSTORY Boards of directors are always being asked to review applications to purchase from potential purchasers. Every board has its own methodology and criteria for such reviews. This is not usually something that is public knowledge, except perhaps for the building’s financial requirements. For example, the building may limit the amount of mortgage a purchaser may obtain relative to the purchase price, so that more cash is required. The other criterion, which is unknown, is where there is the potential for disputes.
In one case, a building I represent interviewed a young couple with a baby who wanted to purchase a studio apartment for the three of them. On the face of it, that was an unusual purchase, since usually couples living in a studio apartment sell their studio apartments to buy one-bedroom apartments when they have a baby. Here, a young family of three wanted to move into a studio apartment.
When the couple interviewed with the board, they were asked a variety of questions. One line of questions inquired about who would be watching the baby during the day and where they planned to have the child go to school. When the board ultimately turned down the application, the couple immediately assumed it was because the building was discriminating against people with children, and they sued the board.
I defended the case through the board’s insurance carrier. What was interesting is that when I interviewed the board members, none of them said their decision had anything to do with the couple having children. Their focus had been on whether the couple could afford the apartment. They also felt that they probably should have been buying a one-bedroom apartment and were trying the buy this small apartment because they could not afford a larger one. The husband worked in the restaurant industry and his base salary was low. It was augmented with a bonus.
Most boards are cautious about applicants whose incomes depend on a bonus, since bonuses are not a certainty. When discovery took place, we had to disclose how many units in the building had children in them and how many of those units were studio apartments. There were no studio apartments with children in them.
Even though the board members felt they had done nothing wrong, at the end of the day, the board did not want to risk litigating the case to a conclusion and preferred to settle. I worked out a settlement where all the court records reflected that the case had been settled. They did not indicate what was paid, which was a very small settlement payment, made off the record between the parties.
COMMENT There were several lessons to be learned from this experience. First, in looking back, the board members felt that the package never should have made it to the board meeting for a review. Not all applications result in interviews. If the couple’s income did not meet the board’s criteria, the couple never should have gotten to the interview stage. The questions asked about the child were intended to be purely “friendly,” but the board members needed some sensitivity training about these issues to be aware of what they could and could not discuss. Boards should review this process with legal counsel.
What was relevant was how long the husband had worked at his job and his future financial prospects. Similar issues arise when co-ops allow purchasers to buy apartments as a pied-à-terre and try to restrict the use. One building asked a potential shareholder to agree that the children could never stay in the apartment without the shareholder being there. In a sense, that is not unlike the occupancy rules in the proprietary lease, but the board asked the shareholder to sign a document acknowledging that before the closing could be scheduled.
Boards have to be aware of how these policies may be perceived by others. Many boards do not review these things with outside legal counsel. Some review them with other members who are attorneys but are not specialists in co-op law. It is a very important area, and it is worth spending some time to refine the policies.
From the Desk of CJB:
I like boards where there is one contact person who conveys whatever advice I have for the board, so there isn’t a lot of repeating. It is really good when a board has a managing agent who pays all the bills and has all the files of information, and can get it to you quickly.