Politicking during the board interview

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Q.  Is it okay for a co-op board to ask applicants to guarantee support on certain divisive issues, like putting in a new roof deck or elevator?

Could a seller sue if the board turns down an applicant for giving the wrong answer?

A.   While there is nothing legally wrong with asking, say our BrickTank experts, turndowns for giving the “wrong” answer are questionable.

“The board may be breaching its fiduciary duty to the selling shareholder or may be deemed to be acting outside of the scope of its authority,” says real estate attorney Jeffrey Reich.

Although there’s no case law on the subject, says Reich, courts have ruled that boards can’t condition approval on the seller dropping a lawsuit against the building.  This situation is not so different, he says.

And according to real estate lawyer Stuart Saft, the board can be sued if one of the members has a personal interest in the outcome of the hot-button issue.  

However, a board doesn’t have to disclose why it turned down a sale, notes Dan Wurtzel, the president of Cooper Square Realty.

From a practical standpoint, arm-twisting at the board meeting isn’t very effective.  

“The proposed issues are as subject to change as the applicants opinions after they become owners,” notes Paul Gottsegen, the president of Halstead Management.  

Moreover, he says, using the interview process to further political aims is just bad practice.

“After careful review of the complete application, the board should interview only when it is fairly confident of giving approval,” says Gottsegen. “The interview is more to confirm that applicants don’t have three heads rather than a fact-finding mission about preferences on specific issues.”

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