What do Richard Nixon, Madonna, Antonio Banderas and Melanie Griffith, a hedge fund superstar, a foreign national family man, and a successful litigator have in common? Answer: they are co-op board rejects.
Co-op boards have absolute power to approve or refuse a prospective buyer’s application to purchase an apartment. Richard Nixon was denied admission into a Fifth Avenue cooperative after he resigned as President. The San Remo said no to Madonna, and this past February, the Dakota declined to invite Antonia Banderas and Melanie Griffith to an interview. A Park Avenue co-op turned down an Ivy League educated hedge fund trader with a $15 million personal portfolio. Another top Park Avenue board declined the application of a seemingly qualified foreign buyer. A Central Park West co-op refused a well known and highly regarded litigator. And so the stories go.
When the glitterati are passed over for admission to Manhattan’s fanciest cooperative buildings, it’s newsworthy and often expected. But when otherwise perfectly qualified non celebs are denied approval for cooperative ownership, questions can be raised about their board presentations.
Co-op prices are up, and so are the numbers of co-op board rejections. With escalating prices, co-op board members are tightening up their stringent scrutiny of applications. With rising prices comes the need for proportionately higher incomes and liquid assets. In the last couple of years, with declining interest rates, buyers may have been over-reaching to make their purchases. At the same time, co-op board members who serve as unpaid volunteers have a responsibility to identify applicants who are able to pass background checks and financial reviews.
In 2002 and 2003, the press reported that the New York State legislature and Westchester County were each considering legislation to make co-op boards accountable to those whose applications were rejected. In New York, the State Assembly approved the bill, but it never came up for vote in the State Senate. Westchester too never passed the law that would have required co-op boards to provide written reasons for rejecting potential candidates. While federal housing laws prohibit discrimination based on sexual preference, religion, race, age or handicap, the co-op board wields absolute power in its authority to approve or reject a prospective buyer.
This unqualified right was upheld by a decision from the New York Court of Appeals dating back to 1959: “There is no reason why the owners of the cooperative apartment house could not decide for themselves with whom they wish to share their elevators, their common halls and facilities, their stockholder’s meetings, their management problems and responsibilities, and their homes.” For any reason, or for no reason, an applicant may be accepted or rejected. According to Paragraph 6 of the Contract of Sale, a prospective buyer must receive “unconditional consent of the Corporation.” By contractual agreement, purchasers are required to submit their application plus supporting documentation within 10 business days after the delivery of a fully executed contract. In the light of the growing number of board rejections, how do buyers ensure that their co-op purchases will be approved?
The advice to the buyer is simple: choose a smart broker who is experienced, diligent and detail oriented. Then listen to her or him. Your broker will guide you through the intrusive process and will work to present you to your best advantage. If your board package lacks substance, is difficult to understand, or raises unanswered questions, then the board can ask for additional information, which can delay the review process for weeks or even months. Or worse, the board may decide not to invite you to an interview at all. When a board intends to reject a candidate, generally the interview never happens.
While the co-op Contract of Sale stipulates how many days a buyer may take to submit his materials for review, there are no standards or guidelines for how a board must respond. In theory, a responsible board will examine the package and make its recommendations in a timely manner. In practice, however, a review can be as short as two weeks, or as long as half a year. An unusually long review doesn’t necessarily mean that the buyer will be turned down. However, long reviews almost always have consequences. When both buyer and seller are in approval-limbo, much is at stake including any mortgage commitment which may have expired and costs extra money to extend. If a board interview does not occur 30 days after the specified contractual closing date, then either party has a right to cancel the contract.
Broker and buyer need to collaborate, making every effort to stack the cards favorably to provide the best board presentation possible. The more complicated the situation, the more important it is to explain details in easily digestible and understandable morsels to avoid questions which breed negativism and create delays. Board turn downs cause anguish for broker, buyer and seller—as well as embarrassment and financial hardship. The broker’s role in assembling the package and preparing the buyer for the interview is more important today than ever. While boards are not required to give reasons when they reject an applicant, the approval process is hardly a roll of the dice. Preparation requires experience and diligence. A reckless or cavalier attitude or an inexperienced broker can prove unfortunate and regrettable.