Some of our clients have recently inquired as to whether their cooperative board may have been declined their proposed sale because the proposed purchase price is too low. As we have indicated in previous posts , cooperative boards can decline a purchase for any or no reason so long as such reason does not discriminate against protected classes. Once a seller hears that their well-qualified purchaser has been declined, sometimes they suspect that it is because they accepted a price that was too low. Should a cooperative board be willing to disclose this possibility, there are steps that the seller can take to keep the deal alive.
Let’s explore the rationale for a cooperative board declining a sale because the price is too low. The board is likely concerned that a sale price significantly lower than others in the building may adversely affect valuations of other apartments, so that all units for sale in the future may be potentially valued at a lower price as a result. The board, as a fiduciary for all shareholders, wishes to maintain elevated apartment prices for the benefit of all shareholders. As such, declining a purchase because the price is too low is perfectly legal.
However, the seller may be willing to accept what appears to be a low price for the following reasons. Perhaps he is in financial distress, owes maintenance arrears and cannot cover the past due charges without selling the unit. In this case, it is better for the cooperative as a whole if this person sells so that a financially secure buyer owns the unit instead and is current in her maintenance payments. Also, the shareholder may be getting divorced or has been relocated in his job, making it necessary to sell.
Estates are common sellers looking for a low price to more readily transfer the unit that the beneficiaries do not want to own. Given particular circumstances, sometimes a unit is worth less than others in the building because it is outdated and needs significant renovation. Apartments owned by estates may be subject to this issue because the deceased owner resided in the apartment for decades and did not renovate it.
How can sales with low sales prices be saved? First, the board has to disclose that the low price is the reason for the declination, although such disclosure is not currently legally required. Second, the attorneys could present a contract amendment to the board for its consideration. Such amendment would provide that the sales price has been increased (to an amount that the board suggests will pass) and that the buyer will be getting a credit at closing in the same amount as the price increase. That way, the buyer will still be paying the same amount. This strategy will work so long as the apartment will appraise for the “elevated” sales price, so that the proposed lender will still be willing to make the loan.
Our lawyers are prepared to assist and advise our real estate clients if they suspect that their cooperative board declined their deal because the price was too low.