A reader writes to Habitat with a complicated – but not unusual – question: her co-op has a minimum resale price for each unit that she thinks is unrealistically high. “Often,” she writes, “units are on the market for months, and sometimes over a year.” What can a shareholder do?
Minimum prices were frequently established in the midst of the financial crisis that struck in 2008 and 2009, but have fallen out of favor in recent years. Boards that are still using minimum resale prices should be aware that residents have been known to sue over them.
“Boards are doing it very subtly,” says Peter Lehr, director of management at Kaled Management, noting that boards rarely have a written policy on minimum resale prices. “They’ll reject that application for finances, or something like that, or they’ll sit on it for a while.”One property manager, speaking on condition of anonymity, says he worked with a building in Suffolk County that had a written policy. It didn’t play out well. “It created a lot of controversy and a number of people [were] threatening to sue, very upset,” he says. “It started when the market turned big time, around 2008. People were hurting, and they wanted to get out. They were willing to accept a lower price, and the board was rejecting the sales.” One owner filed a complaint with the district attorney and the New York State attorney general. “To my knowledge,” says the manager, there was “no response after six months. Perhaps the authorities do not consider it a violation of the offering plan, or a crime for the board to protect their property values when carried out via a non-discriminatory policy using objective criteria.” Eventually the unhappy owner sold her unit and moved to Pennsylvania.
Part of the reason boards may get away with an informal minimum price policy has to do with the admissions process and where they’re located. In Suffolk County, boards are required to give a reason for rejecting an applicant. In New York City, they aren’t. That lack of transparency can make it easier for boards to keep a minimum resale price policy as an understanding, rather than as a formal rule.So if you suspect that the board is holding up your sale because it thinks the price is too low, what can you, the seller, do? And if you’re on the board and working with such a policy, what consequences might you face?
Real estate attorney Theresa Racht follows a procedure when representing a seller. “I first ask the buyer’s attorney if I can review a copy of the board package,” she says, “to eliminate the possibility of some other reason like financials or pending lawsuits against the buyer as a reason for the rejection. If there is nothing problematic about the board package, I’d have a conversation with either the managing agent or the co-op’s attorney, in which I’d ask if there is anything that could be done to get the buyer approved. How I proceed – if I proceed – with that conversation would depend on the answer I get to that question.”
Is litigation an option? It shouldn’t be your first choice, Racht says. “When I’m representing a seller, my goal is to assist my client in getting the apartment sold, not starting a litigation,” she says. “However, if multiple potential buyers are turned down, and there appears to be some board policy at work that is clearly against governing law or outside the limits of the board’s authority, I would have my clients consider litigation against the board.”