Is Legislation Necessary for Co-op Board Reviews?
May we begin a conversation and opine on the pros and cons of recent proposed legislation by the New York City Council which would affect the purchase approval process of NYC co-op apartments?
Days ago on February 2, three new local bills were introduced affecting cooperatives with more than 10 units:
● Bill 917 would require co-ops to provide financial information to prospective purchasers within 14 days of a request by a buyer whose offer has been accepted by a seller.
● Bill 914 would regulate the timing of the application process to ensure that applicants receive timely approvals or denials.
● Bill 915 would require co-ops to provide prospective purchasers with a written statement of the reason(s) for withholding consent within 5 days after rejecting a candidate.
Similar legislation already exists in Westchester, but in New York, it’s been proposed numerous times over the years on the state level, most recently in 2021, but the bills never got to the floor to be voted on.
Thank you to Attorney Hal Coopersmith who posted this link on an attorney list service that I follow. Hal’s post prompted responses that ranged from censure against “out of control co-op boards” and “small minority of bad apples” to thoughts that these bills were “well intentioned but misguided” and fears that the legislation would lead to higher insurance premiums to cover potential litigation that might ensue and a developing reluctance on the part of shareholders to serve on their co-op boards.
As a professional residential real estate agent with more than 40 years of experience preparing board packages and guiding buyers and sellers through the review process, and as a shareholder myself having bought and sold my own personal residences at 5 different co-ops on the east and west sides of Manhattan, I believe change is in order, though perhaps not legislation.
● Experienced agents already provide co-op financials to prospective purchasers. Bill 917 goes further and specifies the co-op must also disclose the cost of any capital improvements planned or underway as well as the most recent budget and reserve fund amount. Any co-op failing to provide these financial disclosures would be liable for a civil penalty of $500. Isn’t this what attorney due diligence before contract signing is all about? Why must we legislate for this?
● Bill 914 provides that the co-op must acknowledge receipt of the application within 10 days and within 45 days must inform the purchaser whether consent is granted unconditionally, conditionally or denied, or risk statutory damages of $10,000. There are provisions for asking additional information requests and extensions. This seems perfectly reasonable but very unfortunate that co-op boards have not been able to self-regulate on the timing aspect of the review process. The key here may be for co-op boards to impose stricter timing parameters on their hired managing agents who currently can hold onto applications for 2-4 weeks while they do an initial review and check credit.
● Bill 915 says when a buyer is rejected, the board must issue a sworn statement within 5 business days of the reasons for withholding consent with sufficient information to enable the purchasers to remedy deficiencies in their application, and must also disclose the number of other rejected applications in the last 3 years. Failure to comply can result in statutory damages of up to $25,000. In the past, I’ve reserved judgment on this, thinking it would be tough to get shareholders to serve on their boards. But it would certainly help to minimize what seems to be a growing wave of “bad apple” co-ops who reject a candidate because the contract price is too low, forcing the applicant and their attorney to increase the price with a credit at closing, artificially inflating the value of the property. Some boards have been notoriously guilty of this for years, and they are doing a grave disservice to all other shareholders.
● Should co-op boards provide financial guidelines for what they are looking for in a candidate, i.e. what debt to income ratio would they like to see and how much in post closing liquidity? I’m not suggesting that this be legislated but guidelines from the managing agent would lend more transparency to the process.
It would be good if we could come together as an industry to make some changes to this process without having to legislate, blending the talents of experienced residential brokers and transactional attorneys along with the bet practices of managing agents and councels who represent co-ops. What say you?