When Co-op Board Actions Shade From Unreasonable to Illegal

Co-op board powers are based on case law, and they’re immense. Boards have the power to make decisions “for any reason or no reason,” according to a 1986 court ruling – provided they are acting in good faith, are looking out for the best interests of the corporation, and are not discriminating against one of the protected classes under city and federal Fair Housing laws.

What about this increasingly common event: boards that repeatedly turn down reasonable offers to purchase an apartment? (The fact that boards are not required to give reasons for the rejections has led to repeated efforts – so far unsuccessful – to legally require more transparency from boards.) And what if the reason for the rejection is based on bad faith – if, say, a board member is angling to buy the apartment at a reduced price?

“That, in and of itself, could be a breach of the board members’ fiduciary duty,” attorney Steve Wagner, a partner at Wagner Berkow, tells Brick Underground. “Turning down a prospective buyer so that a shareholder will sell to you at a discounted price is self-dealing. Board members can’t pursue personal agendas or vendettas."

Wagner’s advice?

"If a board member came to me as attorney for a co-op and said, ‘The board has turned down applications three times because they’re trying to help a board member who wants to buy the apartment,’ I'd tell them that they may have put themselves in line for a successful lawsuit for breach of fiduciary responsibility. And if the apartment subsequently sold for less than the price in one of those rejected contracts, it could be a way of establishing damages. It really is not OK for a board member to be disapproving prospective purchasers and at the same time trying to negotiate to purchase the same apartment on their own. This is a zero tolerance area."