Can You Ban a Problematic Real Estate Broker from Selling in Your Building?
Jan. 28, 2014 — No condominium or cooperative board wants to restrict its residents' ability to work with brokers they choose; indeed, some argue that this would be illegal restraint of trade. Yet some brokers are problematic, creating needless issues for boards to deal with, from selling apartments at cut-rate prices, lowering all residents' equity, to simply being a pest who bombards residents with unwanted e-mail. So what can a condo or co-op board do?
First, realize that you can do something Forbidding a broker from working in your building is an extreme step to take — but one that many boards don't even realize is open to them. Attorney Stuart Saft, a partner at Holland & Knight, says: "The board absolutely has the power to ban [any type of] brokers from [doing business] in the building. They can ban for abuse, and any other reason, except for self-dealing, bad faith, or discrimination. The board of a co-op has complete control of the co-op." The Business Judgment Rule-basis for this applies to condominium associations as well.
What are the areas of discomfort that may force a board to take some sort of action against a broker? These include repeated instances of incompetency or dishonesty; constant breaking of building rules; sending too many e-mails to residents trying to get them to list; and staging open houses after being told to stop. In short, anything that affects the residents' "quiet enjoyment" of their apartments and the smooth running of the property.
Resident Brokers
The issue gets even more tangled in the case of resident brokers — shareholders or unit-owners who happen to be real estate brokers. Boards can become uncomfortable if their rejection of an apartment sale means the broker involved (who is also a neighbor) loses income. "If you reject his sale, it hits very close to home," says Dan Wurtzel, president of property management at FirstService Residential. "You're telling someone who's a shareholder, 'I'm sorry, you're not going to get paid on this deal.' That can create some uneasiness within a building community."
The broker was misrepresenting
the property and speaking
badly about the building.
That sense of unease intensifies when a resident broker actively lists in the building while also serving on the board — even if this individual recuses himself from the vote. In 2005, Corcoran Group broker Bruce Robertson sat on the board of his Washington Heights co-op. When an applicant for an apartment he listed appeared before the directors, he recused himself from the process. However, he ultimately decided not to run for office again and instead works on various committees for the building.
Moreover, if the building doesn't appear open to other brokers, "then it becomes a fait accompli, and it's not right," says Ellen Kornfeld, a management executive at The Lovett Group. The arrangement "doesn't allow for much competition," which means sale prices may flatten out.
Residents could also get the mistaken impression that the sale won't be approved if they don't use the broker who lives in the building — the one that everyone uses. "Somebody who is selling their apartment may feel that if they don't give the listing to [the go-to broker, a potential buyer] might get rejected," explains Robertson.
Should you Decided to Pursue a Ban
Whether with a resident broker or an outside broker, step one before attempting to issue a ban is to try to work things out. Attorney Robert D. Tierman, a partner at Litwin & Tierman, advises boards to give the offending broker every opportunity "to clean up his act before being banned."
The reason is simple: Forbidding a broker from working in your property will invariably lead to a lawsuit. "You must realize that there is a strong likelihood that [a restriction on a broker] may be challenged in court," warns attorney Dean Roberts, a partner at Norris McLaughlin & Marcus. "A broker who just does a little business in a building probably won't sue, but a broker who does substantial business in a complex might."
So be prepared with the facts. Roberts says that his client, a New York City co-op, prevailed against a challenge to a ban it had imposed on a broker by having a clear rationale for its actions. When examined in court, the directors explained that "it was to protect shareholders, because the broker was selling apartments at too low a price, misrepresenting the property, and speaking badly about the building — really about the board. In short, they said the broker was not operating in the best interests of the co-op."
Boards should also be wary of overreaching. In 2012, The Link, a luxury Midtown West condo, tried to ban a broker who had sold multiple listings in the building, accusing her of running short-term rentals (otherwise known as "illegal hotels"). The broker, Katherine McFarland, had previously lived in the building. In response, according to TheRealDeal.com, she filed a $20.4 million lawsuit. After the board lifted the ban, she withdrew the suit. An attorney for The Link says the board declined to comment.
The upshot is that boards should realize that you don't have to let it be when there's a problematic broker; you have the power to make it better.
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