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Avoiding Discrimination Claims in the Co-op Approval Process

Daniel Finger, Partner, Finger & Finger in Legal/Financial on December 14, 2023

New York City

Dec. 14, 2023

Co-op owners are shareholders in a corporation and the board must ensure a buyer can afford the financial commitment this brings. This is why co-ops have an approval process for potential buyers, involving an application and interview. However, if the board turns down the purchaser it’s possible the co-op may face complaints of discrimination at any stage in the process. It’s therefore very important for board members to actively participate in the application review process and follow the relevant guidelines. Unlike New York City, co-op boards in Westchester must give reasons for rejecting an applicant. 

Navigating the approval process. The managing agent’s role is to make sure the application is complete but the board must take on the responsibility of calculating the debt to income ratio and assessing whether the applicant is financially eligible. A buyer can be rejected if they do not meet a building's financial requirements. Once the application is reviewed, the interview is an opportunity to go through the house rules and assess the applicant's compatibility with the community. The meeting can also be used to clarify any details on the application. To avoid claims of discrimination, board members must not ask questions related to protected classes such as race, age, ethnicity, or gender. General questions about the person's interests, things they do in the community, their job, or clarifications of any financial aspects on the application can be discussed without breaching anti-discrimination guidelines. It’s crucial that all applicants be treated the same, regardless of protected class. 

Providing reasons for a rejection. There are specific rules a board must follow for a co-op application in Westchester that do not exist in New York City. The most important of these is that a buyer must be given reasons for a rejection. If this situation arises, the buyer must be notified in writing using a standardized form provided by the Human Rights Commission. The form allows boards to give specific reasons for the rejection. Contact information must also be provided for the attorney, the buyer's attorney, the seller's attorney, the buyer's broker, the seller's broker if there is one, and the managing agent of the co-op. In addition, there is a 60-day time frame for the process from start to finish. This includes the review, interview, and decision on the application. Once an application is submitted, the board has 15 days to alert the prospective buyer of any issues making the application incomplete. This might include missing documents or omissions to questions. Once the buyer is informed of these issues, the clock stops until they resubmit the application. Once completed, the board has 60 days, including the prior review period, to determine whether to approve or reject the application. 

Handling claims of discrimination. If a buyer is rejected, they have the option to approach the Human Rights Commission and file a complaint. This multi-step process includes the formal complaint, board responses, investigations, and hearings, which may or may not result in fine for the co-op. If a board in Westchester does not follow the guidelines or deadlines required when sending out the rejection letter, penalties can be imposed. These fines are $1,000 for the first violation, $1,500 for the second, and $2,000 for every violation after that. There is no limit to compensatory damages if an applicant is successful in their claim of discrimination and the relief may require the board to accept the buyer or make any reasonable accommodations for their circumstances. In the event of a discrimination complaint against a co-op, it’s important to report the situation to the co-op's insurance carrier, even though these claims will typically increase insurance premiums for the building. The insurance company won't pay damages, but will help pay legal fees.

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