Co-op Board Rejection, Without Explanation, Causes Frustration

by Robert J. Smith on June 9, 2010

Co-op shareholders who are clients of mine want to sublease their apartment to some folks who I know quite well. All was going swimmingly until the cooperative Board decided to reject the sublease application without providing any reason whatsoever.

As you might expect, both the shareholders and the prospective subtenants are extremely frustrated and disappointed by this turn of events. The shareholders, who are traveling for work and want to put someone into the apartment in order to generate revenue, are worried that they might suffer the same fate with their next prospective subtenants, without knowing why the first applicants were rejected. The prospective subtenants are bewildered and wonder whether they will be turned down if they apply to another coop Board for approval. And they don’t even know why they were rejected!

Unfortunately, the present state of NY law allows coop Boards to utilize the “business judgment rule” to reject an applicant for purchase or sublease for any reason or for no reason, as long as there is no discriminatory purpose. Given that they did not provide a reason (and they are not obligated to do so), how can someone determine if there was discrimination? The answer lies in litigation, where the discovery process can reveal the motives behind the rejection. But who has the time or money to litigate, especially when the actions of the Board would probably withstand judicial scrutiny? It takes a lot to prove discrimination, and most Boards are sensitive enough to this subject to avoid even the appearance of improper action.

This issue has been discussed at great length recently in the Committee on Condominiums and Cooperatives of the  NY State Bar Association’s Real Property Section (the “Committee”). Realtor groups are trying to convince legislators to enact legislation that would compel cooperative Boards to reveal their reasons for rejecting applicants for purchase or sublease. Thus far, the legislation has been introduced in Suffolk County and is being considered in Nassau County. It has not yet been enacted in either jurisdiction, but it is clear that this issue will not go away quietly, or soon.

Thus far, the Committee has opposed the proposed legislation, primarily out of concern that compelling coop Boards to reveal their reasons would expose them to a firestorm of litigation. People can twist the reasons provided by a coop in several ways, some of which could provide a basis for further action. (And what if the reason was something personal, such as the applicant’s behavior during the interview, or the way someone smells? These are legitimate, non-discriminatory reasons for a rejection, but coop Boards may be uncomfortable providing them as a reason.) While I understand the logic of that argument, I am faced on a regular basis with people like my clients and their prospective subtenants who want answers that will give them some guidance  for the present situation and for their future dealings, as well. I am not certain whether the proposed legislation would provide that clarity, but I do know that, in situations like this one, people deserve answers.

{ 10 comments… read them below or add one }

andrea April 17, 2011 at 7:41 pm

Coop shareholders are the most disenfranchised apartment dwellers in the world. They have all of he responsibilities of property owners yet NONE of the rights. All of the risks of homeownership with almost none of the benefits. But conversely, the Coop has all of the rights of a landlord with almost NONE of the responsibilities. And the responsibilities that they are subjected to are nearly impossible to enforce due to the fact that they are not technically a landlord but a “corporation” and virtually a micro legislative body which often times does not even have to answer to the courts.

The ombudsman bill is just a shiny object. it has no value. It’s simply a room where disgruntled shareholders can go and complain with no framework for achieving results or protecting home owners. Without new REAL legislation and a governmental body who will actually intervene on behalf of coop shareholders, the ombudsman bill is nothing more than another useless tax. It wouldn’t surprise me that the ombudsman bill was engineered by powerful NY Real Estate interests to redirect the increasing awareness of the inherent problems in this corrupt institution.

Until Coop apartments are given the same protection as other forms of home ownership you will see more and more crisis situations arise as the Coop boom of the 80s matures and conflicts between shareholder and landlords (“Sponsor”) end in disaster for the shareholder.

Coops need to be reformed so they are legislated and governed for what they are: “HOUSING”! A persons most personal and valuable asset.

Ana June 3, 2011 at 1:39 pm

Thank you for the article. My situation is similar like your client.
I have a coop in queens that I have been trying to sell since 2007 (not continuously, I had it for sale in 2007 and tried to sell again since 2009) . I have so far, presented the building board with a total of four buyers. Two buyers before the economic crisis /housing market crash, one buyer in 2010 (before the buyer’s incentive was taken away) and now I have recently presented a buyer in May 2011.
I just found out that this buyer is also being rejected. I have asked the board numerous times for some guidance as to what they are looking for and no help. My buyers, especially the last two buyers were financially stable as far as I know. I am frustrated and sick of lowering my selling price again and again (a total of 70k less from when the apartment was first listed on the market) I have two properties, so I am getting desperate at this point. The building’s lawyer is no help, the board won’t help, I asked my lawyer and he is basically telling me that the board has all the rights.
I cannot believe in today’s world, this day in age , the government and the NYS law does not provide protection for co-op shareholder like me against the terrorists ( the board) who is holding my apartment hostage. This type of practice should be stopped, mainly given that NYC is primarily made up of co-ops. I don’t know what I can do? Where can I go for help? Who can I put my request with? I am all for pushing the law that the board should give some explanation, where can I sign up or write? I would like to go to the media with this injustice.
I also would like to tell you that since I have been on the market the house below me sold and the apartment next to me that was on sale at the same time as mine (I think even after) sold immediate and well under market value. I am starting to feel if they have something against me, but again I have no law protecting me (the shareholder) or my investment. Can you please help point me to the right direction?

lionel Altura June 8, 2012 at 6:29 pm

I own a coop in Queens and there is a buyer whose application fee of $500.00 was alsready cashed by the management last April 28, 2012. As of this writing, with all my calls and e-mails that I sent since, I have not recieved any reply from the Board. the buyer already paid for aprraisal fee and their bank loan was already approved. The management told hem that they have to wait for 2 weeks(after the check of $500.00 for application fee was cashed) and as of this writing June 9, 2012, we have not recieved any news from the board. What should we do?

Robert J. Smith June 30, 2012 at 8:00 pm

I’m sorry about what you are going through. While most coop boards and managing agents are responsive and deal with applications reasonably, you occasionally will run into a situation where they crawl into a hole of unresponsiveness. I would continue to put pressure on them to act. Send letters by certified and regular mail to the managing agent and the Board, and copy your purchaser. I would keep the tone civil, but stress that the Board’s inaction is jeopardizing both you, the shareholder, and the purchaser, who is the prospective shareholder.

Tony July 14, 2012 at 1:05 pm

I was in contract to purchase a coop in Queens and was just denied yesterday. They didn’t even meet with me. I was paying cash for the coop. No outstanding debt, great credit, good job history and no criminal background. If I meet all the criteria, why am I not approved? If they post their qualifications and I meet them then it must be discrimination or an act against the interest of the shareholders. It is absurd that they are not obligated to give a reason when there are discrimination laws and money is changing hands. It seems like unfair trade that they can scam people out of application fees and just deny without ever posting the qualifications so that consumers can than decide if they should pay.
I wish I would have known then, what I know now. How anyone buys into these coops is beyond me. And how our lawmakers allow this disgusting, immoral and unethical practice run amok is even more disgusting.

Gregory Sacchet January 12, 2013 at 7:46 am

In August 2012, I negotiated to purchase a property at 81 Rockledge Road, apt 1B in Hartsdale, NY. The listing price was $169,000. My bid of $157,000 was accepted by the seller. Several weeks later, I was informed that the coop board denied my purchase. I spent $1,350 in non-refundable fees, including $250 for the board to review my application. I was not given a reason for their denial. I possessed the capitol to purchase the property and the board never interviewed me. ​The following day, the property was placed back on the market – for $179,000. ​​I am told by real estate professionals that the board refused the sale because other apartments in the complex sell for at least $200,000 and this sale would cause the value of existing properties to depreciate. This practice is illegal, and I am owed $1,350 in fees. This incident has been reported to the New York Board of Realtors and the state Attorney General.

Andrew April 15, 2014 at 12:49 am

This is in response to Andreas remark that “The ombudsman bill is just a shiny object. it has no value.” As you stated prior to this comment that their is no support for shareholders, well, Andrea, it has to start somewhere and if you have read the bill and have experienced a rogue board then you would be welcoming the ombudsman with full support and open arms. You really should not post because you really haven’t experienced the severity of the abuse of power of a co op board, pessimists block change and positive and they stay in that world because that’s what pessimists do. If the civil war soldiers were a bunch of pessimists than they would have never stood to fight and bring forth change!

Pablo January 19, 2017 at 1:13 pm

I was purchasing a Coop the seller and me came to an agreement on a purchase price I was approved for the mortgage within one day and a half by the bank. My yearly income is a good one in the six figures credit score is in the 760’s I wasn’t approved by the board. I wasn’t given an explanation to why “Just that I did get approve” to make the purchase. I was never interviewed by the Admission Committee their decision was based on the application and documents that were requested of me.
My finances are in order the maintenance and mortgage combine would’ve been $240 a month more. The rent that I am paying know is $900.00. How could a Board make a decision on an ”application” without even meeting with them in person?
Was I rejected because of my Name? or my Race? This is how I am feeling at this moment.

Robert J. Smith February 27, 2017 at 11:58 pm

I understand your questions. Maybe the Board felt that the sale price was too low. Maybe there was something in your finances that they were uncomfortable with, or perhaps something from a reference didn’t check out. Or, just maybe, there was some improper motive behind their actions. While I believe that Boards usually act reasonably, not knowing why they did what they did makes it reasonable for you to speculate. If you truly believe that there may have been discrimination of some kind, you can file a claim with the NYC Human Rights Commission.

Pablo February 28, 2017 at 6:55 pm

Mr, Smith

Thank you for your response I appreciate it that you took time out of your busy schedule to respond back to me.

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