New Rules for Purchase Applications

The push to open the co-op purchase process has a long history. It began back around the year 2007, when a bill was introduced in New York City that would have required co-op boards to give a reason for rejecting a purchase application. Before that, all the buildings that had been converted or became co-ops basically had a provision in their proprietary lease that said the board could reject an application for any reason or no reason. 

Also at that time, in the state Legislature there was a bill that would have required boards to give a reason and to act within a certain time frame. The penalty for failing to act within that time frame was that the applicant would be automatically accepted into the co-op.

After failures, a breakthrough. Neither of those became law. But in Suffolk County in 2009, a law was enacted that required co-op boards to give a reason for rejecting an application. That bill was supported by the New York State Association of Realtors, and it was opposed by the Real Estate Board of New York and the Council of New York Cooperatives & Condominiums.

The Realtors, as I understand it, were saying that boards could act in a discriminatory manner, or surreptitiously. The opponents of the law were saying, “Listen, the boards have been acting for the betterment of the community and for the existing shareholders all these years. If there is discrimination against an applicant, then the applicant can seek redress by going to local or state or federal agencies. Or they could bring a private lawsuit.” Despite their objections, it was enacted in Suffolk County.

Westchester County gets into the game. No other jurisdiction enacted such legislation until 2018, when it was attempted in Westchester County. What was put into effect at that time was a law that said the boards had to act within a certain time frame. Basically, they had to notify applicants within 15 days whether their application was complete or not. When there was a completed application, then the board had to decide on it one way or another. If there was a rejection, no reason had to be given, but the board had to advise not only the applicant but also the County Human Rights Commission. The commission, in my view, was just compiling data on how many purchase rejections co-ops may have been accruing over the years.

The other shoe drops. There has been a recent development in Westchester County. By a vote of 15 to 2, the County Board of Legislators passed a bill last summer that amended the 2018 statute. It did several things. First, it requires that the boards give a cover information sheet that does the following: spells out the time frames that boards have to act on an application; lists the various classes that are protected from discrimination; and lays out the financial requirements for potential purchasers. If the co-op board doesn’t have minimum financial requirements, it has to at least state what its preferred minimum financial requirements are. The bill also calls for the boards to give a reason for rejecting an application. If it’s rejected, the board has to give notice both to the applicant and to the County Human Rights Commission on a form that’s promulgated by the commission. We’re not done. The bill also requires that board members undergo fair housing training every two years, and new board members must undergo this training within 60 days of joining the board. The penalties are $1,000 for a first violation, $1,500 for a second and $2,000 for every subsequent violation. The law in Westchester is quite stringent, frankly.

A possible chilling effect on boards. I could see that in Westchester there could be a chilling effect on people willing to serve on boards and on people who are already on boards. I could see a board member or potential board member saying, “What do I need this potential liability for?” Boards in Westchester — and if this were to expand to New York City or elsewhere — need to work very closely with their legal counsel and their managing agents to assure compliance with the law. They may also want to check on their directors and officers liability insurance to see if there would be defense coverage in the event a prosecution of some kind comes about. They would also want to check on whether there’s indemnity. Most of the time indemnity is denied if there is illegal conduct. So that in itself could potentially have, as I said, a chilling effect on boards.