Sponsor Obligations

Frost Equities v. Frost Owners Corp.

The board of an Upper East Side cooperative, together with several of its shareholders, filed a lawsuit against the co-op’s sponsor, seeking to force the sponsor to sell the remaining apartments (constituting just under 30 percent of the total shares of the co-op) it still owned. The sponsor filed counterclaims, asserting that it had no express or implied obligation under the offering plan to sell all of its shares. The parties ultimately settled the case with the sponsor agreeing to sell a significant portion of its remaining holdings in exchange for certain financial incentives from the co-op.

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"The reality check in this case is that there is no absolute doctrine that requires a sponsor to sell his or her shares. Because of this, your building may have difficulty getting financing, independent purchasers can’t get on the board, and/or owners may have difficulty selling apartments. To address this problem, you first have to make sure the problem is real by reviewing your corporate documents. Only then can you consider pursuing negotiations or legal remedies."

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