Is Killing Low-Ball Sales a Breach of a Co-op Board’s Fiduciary Duty?

It’s no secret that the market for Manhattan co-ops and condos is soft and getting softer. According to a new Elliman Report, the average sales price of condos and co-ops in the third quarter dropped 14.1 percent from a year ago to $1.66 million. The median sales price (half of the condos and co-ops sell for more, and half sell for less) fell 8.2 percent from a year ago to $1.03 million, which is down 13 percent from two years ago. 

Since co-op boards, unlike condo boards, can reject a purchase offer if they deem the price unacceptably low, numerous apartment sellers have been caught in a vicious bind: after repeated price cuts to lure a buyer, these sellers get blocked from closing the sale by a co-op board that’s trying to protect building-wide values by rejecting an offer it deems too low. 

Such rejections, in the opinion of appraiser Jonathan Miller, author of the Elliman Report, are both a disservice to shareholders and a breach of a co-op board’s fiduciary duties. In his Housing Notes blog, Miller writes: “I’ve been told that a growing number of boards are killing sales they deem too low. Here’s my message to all co-op boards who do this: the market doesn’t care what you think. By killing sales you think are too low, you are violating your fiduciary responsibility to the shareholders by acting this way. Co-ops that do this are damaging shareholder equity as brokers steer would-be buyers away from boards that are violating their fiduciary responsibilities.” 

Miller cites a letter that Donna Olshan, president of the brokerage Olshan Realty, sent to the board of a co-op that had rejected a sale that finally took place after months of price cuts. Olshan reported that the apartment was originally listed in May 2018 but didn’t find a seller and was taken off the market in December. It was re-listed at a lower price in March 2019 but again failed to sell. The price was cut again in May, which finally led to a sale in August. This, in Olshan’s view, was the “fair market value” of the apartment – though it was below what the co-op board was hoping for. 

Once again, co-op boards can’t win for losing. By trying to protect apartment values, which is part of their fiduciary duty, co-op boards that reject a purchase price as too low might be breaching their fiduciary duty.