Bruce Cholst in Co-op/Condo Buyers
The courts have traditionally recognized that co-op shareholders, via their boards, have the right to determine with whom they wish to share their community. Subsequently, the courts have upheld boards' right to reject prospective purchasers or subtenants for any reason or even for no reason.
However, federal, state and municipal laws give 15 "protected classes" of housing applicants, and a board that refuses to approve you because you fall into one is guilty of illegal discrimination. In any claims of such, the New York City Commission on Human Rights will often conclude that a board's stated legitimate rationale for the rejection was merely a pretext.
The 15 protected classes are:
• national origin
• sexual orientation
• marital status
• military status
• and, in New York City, both occupation and,
• as of March 28, 2008, lawful source of income, which is less a concern with co-ops than with rental landlords discriminating against tenants based on the fact that they receive federal rent-subsidy vouchers or other government assistance to pay their rent.
In the real-life example at the start of this article, the city's Commission on Human Rights overruled the board's rejection of this couple and assessed money damages, perceiving discriminatory statements concerning gender, marital status, age and occupation. It disregarded what the board considered the couple's weak financials for purchasing that particular co-op apartment, and was unmoved by the interviewer's explanation that he was "just trying to put the young lady at ease with small talk because she appeared nervous."
To protect itself, then, a board will insulate itself as much as possible from direct contact with you. They likely will not meet with you until the board package is complete and the admissions committee is satisfied your financials are in order. If a board can legitimately reject you on financial grounds without having met you, it can more easily prove it did not know whether you were a member of a protected class. Thus, board members will have their managing agent (or attorney if the building is self-managed) serve as a buffer between you and themselves.
A board almost certainly will give you no reason for a rejection, and the law does not require a reason to be provided. If you begin a lawsuit, however, the board will then have to justify its decision. And if board members took notes at or subsequent to the interview, such written material is subject to discovery in a lawsuit — unless it was in the form of a a memorandum addressed to corporate counsel "in anticipation of litigation." Such a document is protected by the attorney-client privilege. A board in its defense may also show documentation that it has accepted other members of the same protected class, though the possibility exists this may be tokenism.
Rare but Real
A lesser-known pitfall involves board members who manipulate the admissions process in order to take personal advantage of buying opportunities within the building. In such cases, courts have held such members individually liable in money damages for their "self-dealing."
Additionally, board members expose themselves to personal liability for breach of fiduciary duty when they misuse their rejection power to prosecute vendettas against particular sellers or vary their admissions standards to assist friends who may be selling their apartments.
Bruce Cholst is a partner in the law firm of Rosen & Livingston. Additional research by Frank Lovece.
Illustration by J.D. King.
Adapted from Habitat February 2007. For the complete article and more, join our Archive >>
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