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Co-op boards may have to explain why they rejected a buyer

New York State lawmakers are once again trying to make co-op boards have to provide their reason for rejecting a buyer. Critics say it could put co-ops at risk of expensive litigation. 

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The secrecy surrounding New York City co-op board decisions could come to an end if a state bill that would require co-op boards to explain why they rejected a buyer becomes law.

As the law stands now, a co-op board can reject a potential buyer, even one who is financially qualified, and not give any explanation unless there's a claim of discrimination. State lawmakers are trying again to change this and make co-op boards provide their reason for turning down a buyer.

New York State Senator Brian Kavanagh chairs the housing committee and is the sponsor of this bill, which he says would also make co-ops agree to some basic standards for reviewing the application package, including a timeframe to compete the process. 

"This comes out of a both a general interest in making the process fairer and more transparent for all parties. It has also become of very significant interest to fair housing organizations who believe this basic information is helpful in their efforts to enforce the Fair Housing laws, which already apply to co-ops," he says.

This will likely be welcomed by buyers. When Nick Davies bought a co-op in Bay Ridge a few years ago, one of his concerns was that the board could reject him on a whim

Advantages for buyers

In fact, most rejections are based on application packages, with the bad news delivered well before a co-op board interview is even scheduled. Even so, transparency is typically a step in the right direction and if you know the reason for rejection, you have an opportunity to make changes the next time.

The benefits for the buyer include knowing what you are getting into. "We are not changing the standards but we are saying when you are in the business of accepting and rejecting people's desire to purchase a home some basic level of transparency and predictability in your process should be part of the mix," Kavanagh says. 

Potential for more litigation

However, critics of the bill say a change in the law is unnecessary because robust federal, state, and city anti-discrimination laws are already in place. If a potential buyer feels they have been discriminated against, a co-op must give a reason why they were rejected—and if they are in a protected class, the co-op can face a lawsuit. 

Attorney Marc Luxemburg, president of the Council of New York Cooperatives & Condominiums, says a new law directing co-op boards to give a reason every time a buyer is rejected could open co-ops up to more litigation for which they are not prepared. He says courts should not be telling boards how to run their buildings. 

"The court of appeals has held for 60 years that co-op residents have a right to decide who will share their homes, and that courts should not tell boards how to manage their co-op," he says. 

Broadly, inequality and discrimination have been laid bare during the past 12 months. In New York City, a lawsuit was recently filed against dozens of landlords who are accused of discrimination against renters relying on Section 8 vouchers to pay their rent. Senator Kavanagh says the way a co-op board gets to choose whether a buyer and seller can close on an apartment "creates a huge opportunity for discrimination," and he hopes his bill will address that. 

"I'm neither looking to go back 60 years or looking to impose new obligations on co-ops but what I am looking to do is provide a reasonable standard of fairness in the process for the buyer and the seller," he says. 

Typically, a rejection by a co-op board is more "subjective," Luxemburg says. It might be based on a determination that the buyer won't be a good neighbor or won't follow the rules of the building, hence the tension around the co-op board interview. But Luxemburg says that subjectivity creates problems—you can't legislate against someone's personal feelings or opinions. "Who judges if the reason is a good reason? There’s no standard in the legislation as to what is a good reason," he says. 

When the Housing Stability and Tenant Protection Act became law two years ago, co-op boards found themselves having to adjust their practices to comply. Boards could no longer take more than one month's maintenance in advance and that became a concern. 

"Co-ops have ridden out the various financial downturns because the boards have been very careful about taking people that only get into the building if they have a sound financial basis," Luxemburg says. In his opinion, this bill similarly "threatens the stability of the co-op for no good reason." 

Why change may finally happen

Efforts by lawmakers to make these changes are not new. In fact there have been bills put forward to address rules around co-op rejections in every legislative session since 2009. 

It's possible the Democratic supermajority in the State Senate might finally move the needle on this issue but it won't happen without a fight. Kavanagh says he expects to hear from co-op owners and insists the law is not designed to make the process more complicated or onerous.

"I do think there's an opportunity here to make an important stand for fairness in the co-op purchase and sale market and this is what are are going to do," he says.