My co-op board set an unreasonable minimum sales price for apartments. What can I do?
My co-op board has set an unreasonable minimum sales price for apartments. I can't justify the asking price to potential buyers but I want to sell. What can I do?
“The board of a traditional co-op is not allowed to set a minimum price for an apartment sale or for shares in the building because that constitutes an illegal restriction on the alienation of property—and restrictions on alienation of property are policies or rules that prevent you from selling,” says Steven Wagner, a partner at the Manhattan law firm Wagner, Berkow & Brandt who represents co-op and condo boards and owners.
During the height of the pandemic, New York City apartment prices dropped and although the market appears to be stabilizing, Wagner says it’s possible co-op boards may have unrealistic expectations for a sale and therefore improper restrictions. In fact, these types of issues typically arise in a down market.
That’s not to say that any restriction is illegal. Wagner points out that co-ops have the right to review and approve a prospective buyer and can reject them for any reason as long as it doesn’t violate the co-op’s or condo’s governing documents or discrimination or other laws.
“That is a legal restriction on alienation of property and is provided for in the governing documents—the proprietary lease and the bylaws—but setting up a minimum price or a floor below which a co-op won’t sell is not allowed,” he says.
For example, a co-op board cannot tell shareholders they can only sell shares above a stated dollar amount or can't sell shares more than 10 percent below the appraised value of the apartment. Neither can there be a blanket prohibition—for example, restrictions on the sale of a one-bedroom apartment for less than $1,000,000 or a two bedroom for less than $1,300,000.
The board can, however, reject a buyer on a case-by-case basis. For example, “if you are trying to sell the apartment for a 30 percent discount, there doesn’t have to be a floor price for eyebrows to be raised and your sale to be rejected,” Wagner says.
How to prove an illegal policy is in place
If you’re a shareholder in a traditional co-op and a board member has insinuated that you won’t be able to sell your apartment at the price you’re hoping to list at, that may not meet the standard of illegally restricting a sale unless you can prove there is a policy establishing a minimum price or floor.
“Ask the board or managing agent to confirm it in writing,” Wagner advises. “Alternatively you can call the board or property manager on the phone and have them repeat the policy to you while you record the conversation, so you have proof of illegal restrictions.” (New York is a one-party consent state, which means at least one person in the conversation must agree to the recording. “Taping a call in which you are participating is legal,” Wagner says.)
Maintaining the value of a co-op
Not only must a board ensure the co-op building is well maintained and the governing rules are followed but they also have an obligation to protect the share price. “Having a floor price may seem like a practical solution but in a conventional co-op it is not legal. Boards need to protect the share price through legal means,” Wagner says.
The best way in which a board can support the share price of a co-op is making sure it is well managed.
“Having a good reserve, keeping maintenance under control, making sure there are improvements being made to the building so shareholders won’t get hit by huge assessments or an increase in maintenance—these are all the ways a board can protect the value of apartments,” Wagner says.
Artificially boosting the value of the apartments by establishing a floor isn’t one of them.
Exceptions including Mitchell-Lama co-ops
One exception to these rules on pricing is if you live in a Mitchell Lama building. These co-ops were set up as an affordable housing option several decades ago and boards can set prices for apartments in these buildings under the Private Housing Finance Law.
In addition, Wagner says for Section 213 co-ops, there’s a “waiver of option fee”, where the board sets the price and this is perfectly legal.
Liability issues for a board
If you get the policy outlined in writing or on tape by a board member or the managing agent, you should consult your attorney. With their help, you can advise your co-op board that they are looking at substantial liability if you are not able to sell the apartment because of their illegal practices.
Your board, in turn, should get an attorney involved and notify their insurance carrier to protect them against what could be significant legal costs.
New York City real estate attorney Steven Wagner is a founding partner of Wagner, Berkow, & Brandt, with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272.
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