Know When to Fold

TAKEAWAY The most interesting part of this case involves the “seller’s concession” often used in New York to artificially boost the purchase price of co-op apartments. This practice is quite common, and is used so as to create higher comparables for the building. But this court sees through this practice, and seems to indicate that one cannot compare recent sales prices (which include concessions) to a third-party appraisal that reviews actual sales prices. Of course, it may be difficult for a court to ascertain which comparables in the appraisal included prices with concessions and which did not, but as noted by the court, this should be determined by a trial court. Further, this court indicates that it is not reasonable for a board to ever insist on a certain price, if the higher price it demands is established simply by creating the fiction of a “seller’s concession.”

WHAT HAPPENED Eleanor Stromberg and Douglas Price owned a co-op apartment in the East River Housing co-op on the lower east side of Manhattan. In 2022, they signed a contract to sell their apartment for $520,000, claiming that a third-party appraisal valued the unit at $525,000. An application was submitted to the board, which had the right to approve or reject the sale. The board felt the price was too low and rejected the sale, and so the contract was increased to $540,000. The board rejected the sale again, and management informed the plaintiffs that the board would not approve a sale with a purchase price lower than $600,000.


The pair brought an action against the co-op, the board, and the manager on various grounds, including breach of contract. While their motions were pending, Stromberg submitted a new sale application from a different purchaser with a sales price above $600,000. The board responded that an amended application was required with more financial information on the purchaser. The plaintiffs then amended the original complaint, now accusing the board of retaliation.


The plaintiffs made several motions, including one for summary judgment for their breach of contract claim (contending that the board breached the governing documents by failing to approve the application). On the other hand, the co-op made a motion for summary judgment, seeking a declaratory judgment that the board may properly consider the proposed price when reviewing the sale of an apartment, and that the business judgment rule protects the board decision to reject the application based on the price. The co-op also made a motion for legal fees.


 IN COURT While the court conceded that the board had the right to withhold its consent for a sale, the court considered the argument that the co-op was being arbitrary and not considering true market value. The plaintiff’s broker submitted an affidavit that stated that the sale reviewed by the board had inflated prices with seller concessions artificially inflating the actual prices paid. The court agreed that a board may consider the price of a co-op, but that the “particular manner” in which the co-op considered the price was “legally impermissible.” Therefore, the co-op’s motions were dismissed, and the court held that there was a material dispute of fact about whether given these facts, the co-op properly denied the sale for insufficient sale price. Further, the court held that the business judgment rule would not shield the board’s decision. 


As to the legal fees dispute, the court noted that the very broad language of the legal fees provision would allow the co-op to collect legal fees for any action brought by the shareholder against the co-op for any violations of the governing document or the law. The court, quoting Krodel, a recent First Department case, held that this type of legal fees provision is unconscionable and unenforceable. 


The court also discussed whether the board of the co-op was a proper party to the action. The court, correcting its own decision in regard to prior motions made in this dispute, held that the board is not a separate entity that can be sued. The court stated that there is no statutory or decisional law that would allow separate actions against the board and the corporation. If a party is aggrieved, a plaintiff can sue the co-op directly (seeking to hold it liable for action of its board), or in certain appropriate cases, a plaintiff can sue the board members individually; but “a co-op board, as a board, is not amenable to suit.”

COUNSEL: For Stromberg and Price: Lee Bergstein, Brianna Neyland, BERGSTEIN FLYNN KNOWLTON & POLLINA; For defendants: Mitchell D. Haddad, Lori K. Sapir, SILLS CUMMIS & GROSS; Dianna D. McCarthy, Kenneth G. Abeyratne, KAUFMAN BORGEEST & RYAN; JUDGE: Gerald Lebovits