Q: Can a co-op board reject the sale of a co-op apartment because the price for the apartment is too low?
A: In many circumstances, a co-op board may reject a prospective purchaser because the price of the co-op apartment is too low. The By-Laws of most co-ops give the co-op board the right to withhold its consent to the sale of a co-op apartment. If the co-op board has the right to withhold consent to a sale, then the decision of the co-op board is generally subject to the “business judgment rule.” The business judgment rule bars judicial inquiry into a co-op board’s actions where such actions are “taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.” Accordingly, courts have upheld a co-op board’s decision to withhold consent to the sale of a co-op apartment in cases where the sale price was significantly lower than the market value of the co-op apartment and therefore could potentially negatively impact the value of the remaining co-op apartments.
However, this does not give a co-op board the unconditional right to condition its consent through the imposition of restrictions on the sales price of co-op apartments in the building. Courts have held that a co-op board’s rejection risks being overturned by the courts if, for example, the co-op board (i) adopts a resolution requiring that a co-op apartment in its building be sold at a sales price set by the co-op board; (ii) requires a co-op apartment to be sold at above-market rates in bad faith; or (iii) requires a sales price to be no less that 10% of an appraised value of the co-op apartment, as these requirements may be an unreasonable restraint on an owner’s ability to sell the co-op apartment.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP