A Co-op Board’s “Ass-Backwards” Demands Can Hurt Sellers

A co-op shareholder found a buyer for his unit, and the buyer sailed through the board interview without a hitch. The seller had already bought a new home, when the board said, “Just one more thing…” 

The seller was told that the unit had to have an "exit inspection" by the super, who flagged something that had previously been approved during a post-renovation inspection. This alleged violation would require the seller to remove a middle kitchen cabinet because the fuse box, though fully accessible, was behind a cabinet door. 

“After I ascertained that no other building on my street requires these inspections, three supers of other buildings said the cabinet ‘violation’ was ‘stupid,’” the angry seller reports on Habitat’s online discussion forum, Board Talk. “The renovations had been approved, and the ‘fix’ – removing the cabinet – would deem the apartment unsellable. I was given the option of informing the buyers that the cabinets were a code violation and they would need to assume the risks, or the board would not sign off on the sale. The buyers walked.” 

The situation was grossly mishandled by the board, says Siim Hanja, an associate  real estate broker at Brown Harris Stevens. “To allow a situation where someone goes to contract and then has to have an inspection – it's ass-backwards,” Hanja says. “You need to have a rule that says if you intend to sell your place, the board insists upon having an inspection of your apartment before the closing to make sure that there's nothing of any liability to the co-op.” 

The law seems to be on the side of the co-op, however. “Most contracts of sale for cooperative apartments provide that the apartment is sold ‘as-is,’ and most proprietary leases similarly provide that the shareholder is taking the apartment ‘as-is,’” observes attorney Marc Luxemburg, a partner at Gallet Dreyer & Berkey. “The law has traditionally been ‘caveat emptor,’ or let the buyer beware and do the due diligence necessary. Purchasers can seek to protect themselves against the seller by adding a rider to require disclosure of certain conditions, including violations. But many cooperatives require the purchaser to sign a statement at closing confirming that the cooperative has no responsibility for the condition of the apartment.” 

Luxemburg adds: “The proper step would be to hire an architect to review the situation and suggest a remedy to the extent one is needed – as opposed to asking other supers on the block whose credentials are unknown.” 

But Hanja argues that such perceived anti-seller behavior by the board can give the building a bad reputation among brokers, making it more difficult to sell apartments in the future. Such behavior can also lead to litigation by an unhappy seller. “I don't think it's in the best interest of the shareholders,” he says. “It's not thought out. It's rules that are made by people who don't understand the real estate business and what goes into a transaction. It's highly damaging, and you do that to the wrong person with deep pockets and you're going to find yourself seriously litigated against. The behavior by this board is unrealistic. It's uninformed. It's unsophisticated. It's damaging. And it’s just plain stupid.”