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Q. How common is it for co-op boards to reject shareholders as purchasers? Is there anything the seller or the rejected buyers can do about it?
A. “Rarely does a shareholder get rejected in their own building,” says property manager Michael Wolfe, who notes that a few proprietary leases actually forbid turndowns of current owners.
Residents buying a second apartment to combine, or simply to live in and sell the one they own, “may be treated a little ‘gentler’ by the board, since they already have a history in the building,” explains real estate lawyer C. Jaye Berger.
But a trouble-making history could trigger the opposite result, says real estate broker Deanna Kory.
"Also, I have had buildings not allow a person to buy a neighbor's unit because the board doesn't want a high concentration of larger shareholders," says Kory. "And sometimes upstairs or downstairs doesn't work because the building is worried about cutting the floor slab and creating an issue with the structure."
Then there's the fact the resident buyers still have to meet the financial criteria required to purchase the new apartment.
If rejected, says Berger, buyers usually “lobby the board members to have them reconsider. Sometimes they hire an attorney to argue their case. Sometimes they move.”
Where the turndown is based on finances, there is another persuasive tactic that may work, says Benjamin Kirschenbaum, vice president and general counsel of Cooper Square Realty property managers.
“If the purchasers are willing to reduce the purchase price being financed and/or are willing to place a significant sum of money in escrow—one year’s worth of maintenance—as security for a default, they can ask the managing agent to submit such an offer to the board for reconsideration,” says Kirschenbaum.
Other than that, there is little that can be done barring evidence of discrimination, says real estate attorney Eric Goidel.
In that case, either the buyer or the seller can sue, says real estate attorney Robert Braverman.
To allege a "prima facie" case of discrimination requiring a board to disclose the reason for a turndown, buyers must show that they are a member of a legally protected class, that they were qualified applicants, that they were turned down, and that the apartment remained for sale after the turndown.
Sellers can claim "associational discrimination"--that is, loss of a sale because a buyer was rejected for disciminatory reasons, says Braverman.
"However," says Braverman, "the seller must allege specific instances of wrongdoing or improper motivation."
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