Schechter & Brucker, Partner
The client’s tale. We represent many co-op boards that believe it is their responsibility to maintain (and even increase, when possible) the value of the shares in their buildings through strict control of the resale process. When a resale package is presented to them for approval, they carefully scrutinize the resale price. Often, this scrutiny is more intense than the review of the prospective purchaser. These boards struggle with the issue of resale price and will often reject a purchaser because the sales price is not as high as the board believes it should be.
Unfortunately, boards often establish what they believe should be sales price based upon their views rather than the facts in regard to the apartment itself or the circumstances surrounding the sale. Too often, the “my home is my castle” syndrome is involved. But the apartment is not a castle worth untold fortunes; it may only be a one-bedroom apartment on the third floor. Perhaps they are not being realistic. While these boards may reject a sale solely on the resale price, there is nothing that requires a board to reveal to the seller the reason for the rejection, and they typically don’t. This leaves the seller uncertain about the reason for the rejection. Very often, the seller finds another prospective purchaser, usually at about the same price; the process starts over again, and once again, it ends with the board’s rejection.
The lawyer’s take. We have seen this happen on many occasions. Multiple rejections can be a huge problem for the seller, who may need to move out of state or use the proceeds from the sale to purchase another apartment or a house (which is already under contract). An estate may be wasting away as it pays maintenance month after month. But perhaps the biggest problem is that a frustrated seller, not knowing the reason for the multiple rejections, may bring an action against the board. We have seen many such sellers sue the board with claims of bad faith, discrimination, tortious interference with contract, and breach of fiduciary obligation. This has now become a serious problem.
We always preach the same thing: be reasonable and be consistent. A board should look at all of the facts of a sale, and not just the price.
Case closed. The board should recognize that a rejection seriously and adversely affects not only the purchaser but the seller as well, who is a shareholder with whom the board shares a fiduciary relationship.