Asked and AnsweredOur application to purchase a co-op was turned down by the Board without an interview. Although our attorney asked the managing agent to disclose the reasons for the Board’s decision, none were given. Can the Board just turn our application down without any explanation?
I’m afraid so. In New York, Boards operate under a corporate concept called the “Business Judgment Rule.” Under this rule of law, as long as the Board is acting in good faith and within the scope of the Board’s authority granted under the by-laws and proprietary lease of the co-op, in almost all cases, a Board’s decision cannot be questioned. Without the ability to make day-to-day decisions relative to the co-op's business, free from the concern that any decision might be questioned, operation of the co-op would be difficult if not impossible. That being said, Boards do not have the right to discriminate based on race, religion and sexual preference. Over the years, there have been a number of cases holding Board members personally liable for overzealous decisions that were clearly discriminatory.
Although the New York City Council attempted to pass a law several years ago requiring Boards to disclose the reasons for their “turn downs”, the proposed law was never enacted. Over great controversy, a law requiring disclosure for Board turn downs was approved in Suffolk County earlier this year. The jury is out on how that law will impact co-op transactions in Suffolk. The chances of a similar law being enacted in New York City are twofold: slim and none.
For more on this, see "How To Avoid a Board Turn Down."