New York Real Estate Lawyers Blog

Our readers may be familiar with a cooperative apartment building located in Manhattan by the name of River House. This building is known not only for its distinctive classic architecture and regal location, but also by its stringent admissions standards for purchasers. It has been well known throughout the New York real estate community that the River House has declined the purchase applications of numerous famous people and persons with seemingly substantial assets. This culture has resulted in apartments being listed for sale for years, because potential purchasers cannot get approved by the board. Overly rigorous standards hurt all residents, as apartments will not sell as readily. The New York Times reported that the River House has recently relaxed some of its admissions standards.

As we have discussed in a previous blog post , a purchase of a cooperative apartment in New York is subject to the approval of the board of directors. If the board declines the purchase, it will not proceed. Legally, a board can reject a purchaser for any reason, so long as the denial is not for discriminatory reasons. In another blog post , we advise cooperative clients to treat all shareholders equally.

The governing case on the matter of decisions by cooperative boards is Levandusky v. One Fifth Avenue Apartment Corp. This case stands for the principle that cooperative boards, like corporations, are governed by the business judgment rule. So long as there is a legitimate purpose to the decision of a cooperative board and such decision is beneficial to the shareholders as a whole, the decision of the board will stand and will not be subject to judicial review. Boards acting in good faith and in the exercise of their honest judgment are insulated from judicial review of their decision. The business judgment rule is limited by arbitrary or malicious acts of board members, favoritism and discrimination. For instance, a board can legally decline a purchaser if it does not like the person, but cannot legally decline the applicant because they want to retaliate against a seller that they do not like, or because the candidate happens to be Hispanic. Of course, proving that the denial was based predominantly upon an illegal reason may be difficult.

In a prior blog post , we described how annual cooperative shareholder meetings should be conducted. Now that the cooperative’s Board of Directors is properly elected and in place, the business of the cooperative should begin with the holding of a meeting of the Board and electing officers. This blog post will describe how to conduct regular Board of Director meetings in a cooperative.

It is not unusual for By-Laws to require a newly elected Board to meet immediately after the annual shareholders meeting, even if such a meeting has not been noticed. Otherwise, By-Laws may require advance notice of the Board meeting. While Board meeting notices usually do not need to specify an agenda, we recommend that an agenda be circulated prior to the meeting so that those in attendance are prepared for the discussion of cooperative business and are not surprised by any of the topics.

At the first Board meeting, it is prudent to elect the officers, such as the President, Vice-President, Secretary and Treasurer. The By-Laws will identify those officers to be elected for a particular cooperative as well as their roles. Review of the By-Laws must be made to confirm the quorum (the minimum number required to hold a valid meeting) required for the Board meeting, whether a majority or other percentage of directors. Once it is determined that there is a quorum present at the Board meeting, the By-Laws should be consulted to note voting requirements. Does a mere majority vote or a higher percentage allow for the passage of resolutions discussed? Particular matters, such as enacting additional fees like a flip tax, may require a vote of more than a majority, such as two-thirds. A flip tax is a fee paid to the cooperative at a closing by the seller and may be calculated as a flat amount, a percentage of the sales price, a percentage of the net profit of the sale, or by assigning a particular number of dollars per share owned by the seller. A flip tax is intended to enhance the account balance of the cooperative and share some of the seller’s sales proceeds with the building. Since flip taxes comprise an additional fee, it is not unusual for voting to require more than a majority or for such a matter to be considered by all shareholders, instead of merely the Board.