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Tuesday, November 14, 2006
We had a board turn down. Can they refuse to cite why?
Real estate attorney Michael Dym observes, "When you purchase a co-op apartment you are actually purchasing shares in a corporation. Ownership of those shares allows you to occupy the apartment pursuant to another document called a proprietary lease". The co-op corporation sets up it's own rules and regulations regarding subletting, maximum financing of the purchase price, guarantors, and most often have the right to approve or reject the purchaser. The co-op's Board of Directors' obligation is to protect the interests of the shareholders and mitigate their risk.
Real estate attorney Marc Rubin answers, "Yes, the cooperative board may turn an applicant down without citing a reason. The Board's decisions are governed by the New York State's Business Judgment Rule. This rule provides that a court should defer to a cooperative Board's determination so long as it acts for the purposes of the cooperative, within the scope of its authority and in good faith. This Rule obviously provides broad-based protection to the cooperative Board.Nevertheless, as a matter of practice, Boards will rarely, if ever, disclose their rationale for a rejection" Michael Dym adds, "While there are a few very rare exceptions, a co-op board does not have to disclose the reason for a turn-down. This is why it's so important to make sure your application and your board interview are carefully prepared and handled". Some buyers find the co-op application process too rigorous and intrusive. It typically requires full disclosure of private information regarding finances, references from business & personal contacts, credit and/or background checks, and an co-op board interview. But others find comfort in the extra degree of oversight that cooperative ownership provides. Cooperatives still make up the vast majority of ownership housing stock in NYC, although at the moment there are almost equal amounts of condominiums on market because of a spike of inventory in new developments. So buyers currently have some good options, but those who are willing and capable of running the co-op application gauntlet are rewarded with a greater spectrum of available NYC properties to call home. Especially when seeking coveted pre-war apartments in prime locations.
A valuable aspect of your broker's customer service should be putting together the board package for you in a way that tells a clear story. Not always an easy task and especially important when working with high net worth individuals where income profiles are often not a standard salaried position. Guiding people through the process is central to my business' and customer's success. There is always a lot riding on the outcome.
Michael Dym Esq. is a real estate attorney in New York City.
Marc Rubin Esq.is a partner in the law firm Rubin and Gold in New York City.
