CONDO BOARDS CAN ACCEPT RIVAL BIDDER'S MONEY TO THWART YOUR SALE, P.2

The board, supporting its designee, sent Netter a "time is of the essence" notice on July 16, 2012, and scheduled a closing for July 30. This apparently was rescheduled to Sept. 7. Netter's Ann Holdings declined to appear, and subsequently the condo board filed a suit.

Netter in response alleged that the Wohlstadters interfered with the marketing and selling of the apartment in order to depress the sale price so that the couple could buy the unit using the board's right of first refusal rather than engaging in a bidding process. He also alleged that the board engaged in self-dealing and bad faith — which, it should be noted, is a pro forma allegation in many lawsuits against boards — and also, more creatively, that the right of first refusal required the board to purchase an apartment "on behalf of all unit owners so that the unit may be put to communal use, such as a day-care center, spa or health club."

Here Comes the Judge

However, Manhattan Supreme Court Justice Anil Singh disagreed. He wrote in his decision that the Wohlstadters were not a party to the suit — The South Tower Residential Board of Managers Of Time Warner Center Condominium v. The Ann Holdings. LLC — and that whether they had offered $7.8 million or not didn't matter.

That might seem confusing to a layperson, since the judge noted that Netter had agreed to sell the unit to Sukhina for $7.4 million, and whether the Wohlstadters offered more would appear to be pertinent. In any case, the bylaws, the judge said, specified that when a seller notifies the board of an impending sale, that notice "shall constitute an offer by the [seller] to sell its [unit] … to the [Board] or its designee (corporate or otherwise) on behalf of all [South Tower] Residential Owner, upon the same terms and conditions as contained in the Sale Agreement .... " In other words, there's nothing in the bylaws saying the board or its designee has to bid more; they just have to match the offer and conditions.

The judge also tossed the "communal use" argument, saying that all unit owners benefit from additional revenue generated for the condominium, in this case the $400,000 fee to buy a portion of the common hallway. Netter also brought up that the board was supposed to close within 60 days of exercising its right of first refusal, but the judge said Netter voluntarily negotiated for eight months rather than insisting on a closing within those 60 days. On Feb. 25, 2014, Singh ruled in the condo board's favor.

Not the First Time

This isn't the only time a board has exercised its right-of-first-refusal on behalf of a board member or a board-member's family — it also happened at The Octavia condominium, at 216 East 47th Street, when a board member made over $112,000 in five months by essentially loaning the board money to buy an apartment. In that case, though a board member personally profited, a judge ruled against a seller who felt there was self-dealing.

What lesson can be drawn from these cases? A cynic might say that a board's decision-making process can be bought, and that it's perfectly legal to do so if the building benefits. Someone else might say these boards simply sought to earn money for the building by aggressively using all the tools at their disposal, and that condo unit-owners, unlike single-family homeowners, have to expect to give up some property rights for the good of the building.

All that seems clear is that with these two decisions in place, it wouldn't be surprising to see condo boards begin to scrutinize more and more apartment sales in order to determine whether a money-making proposition for the building exists, and if so, whether to exploit it.

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