Three years ago, a member of the New York Giants football team was looking to move into Manhattan and applied to buy a co-op at one of the more luxurious buildings in town. Although the player made millions each year, he was denied entrance by the building's board. At that point, he got fed up with the whole New York co-op market—and a few months later, he was living in a million-dollar co-op in Fort Lee, New Jersey. In Fort Lee, he never had to undergo what he thought was an unfair interview process like he underwent in New York.
New York co-op boards are notorious for turning down prospective buyers—even celebrities such as Madonna, Barbra Streisand, newsman Mike Wallace and former president Richard Nixon have been cold-shouldered at one time or another. When explaining their rejection of financially well-qualified applicants, co-op boards often cite their fear that the presence of a celebrity will draw too many fans and other celebrities to the building.
In New York, co-op boards typically reserve the right to approve or reject prospective purchasers. They ask for extensive financial background data such as tax returns and bank statements, as well as personal, professional, and prior landlord references. Generally a prospective purchaser will also have to attend an in-person interview with the board, who will then determine whether the building will allow the sale to the candidate. Interestingly, while co-ops are not allowed to discriminate against an applicant illegally, the law does not require them to give the reason for their rejection if they opt to throw out an application.
Too Much Power?
The board of directors of a co-op or condo plays an instrumental role when it comes to the buying and selling of a unit. The board can sometimes act as a dictatorial fiefdom—and sometimes as diplomatic protectorate. When it comes to admission policies, New Jersey boards may not have the same power that their Manhattan counterparts have, but they still have a vital say in who lives within the association.
Since a co-op is a corporation, a co-op board can control who lives in the building by controlling who is allowed to become a corporation shareholder and proprietary leaseholder. And as long as the co-op does not violate federal, state or local laws against discrimination, it is typically free to grant or withhold its consent to a transfer of shares in the lease for any reason—or no reason at all.
"In New Jersey, when it comes to co-ops, the law does not permit discrimination against shareholders for any reason other than wealth or ability to pay," says David Byrne, an attorney with Stark & Stark in Lawrenceville. "A New Jersey board can inquire about the buyer's ability or inability to pay, but it can't interview the buyer or decide that they're not worthy or anything else like they can in New York."
The Easier Route
This is something you won't likely see happening in New Jersey anytime soon. Condominium boards do not ask for interviews or social references.
"The condo board has no say on who can purchase a condo," says Philip Eisenberg, a board member of Greenhouse Condos in Cliffside Park. "If someone has the money to purchase the property, he can do so without the board stopping him."
Although condos do not have the same ability as co-ops to delve into a prospective buyer's personal and financial background, some condo bylaws require the seller to provide some information about the buyer to the board. That's a relatively rare occurrence, however.
"Under our governing documents, nothing is allowed to be discussed outside of the financial aspect," says Jeffrey Mallinger, a board member of Village at Old Tappan.
An Outdated Rule?
Condos are not entirely powerless to oversee who gets into their communities, however. There is something called the "right of first refusal" written into some condos' bylaws. Right of first refusal is essentially a legal concoction that gives a board the ability to derail an impending sale by buying the apartment from its current owner.
The primary reason a condominium board would want such a right is to ensure or preserve a community of "friendly, qualified, congenial residents."
"Other reasons this may happen is that a board may want to provide a new or larger apartment for a superintendent or may want an apartment that can be used by the condo association itself," says Richard Siegler, a co-op and condo attorney based in New York City. "A board may also want to exercise the right of first refusal if it believes that a particular apartment is being sold at less than market value."
The right of first refusal was actually outlawed in all newly-built New Jersey condominiums in 1982 as an amendment in the New Jersey Condominium Act. Older condos with such rules on the books were grandfathered in however, and the rule may stand in some of those communities.
"In my 13 years of representing condos, I've never seen 'the right of first refusal] used," Byrne says. "They may have the language in their contracts, but none of my clients would ever dream of enforcing it."
Despite it existing in the bylaws, it is rare for the right of first refusal to be used anywhere, according to Douglas Kleine, executive director of the National Association of Housing Cooperatives. "This right fell into disfavor because matching the sale price involved a major expenditure and could leave the association open to a potentially troublesome and expensive suit charging discrimination—especially if such a right was only rarely exercised."
A condominium's board of trustees should be aware that such provisions providing for a right of first refusal are prohibited by the Condo Act and should therefore advise its management to keep a look-out for instances where a developer may attempt to enforce such a right of first refusal.
Since a person's finances are really the lone factor in that person being allowed to buy a condo or co-op in New Jersey, the application form in the admission process is therefore very important.
When a board presents an application form to a buyer, they not only ask the applicant to state his or her current income, but to provide the evidence of the money. While some boards may only ask for a recent Federal 1040 tax form, this may not present a total picture of the applicant's finances.
"You shouldn't rely on the 1040s totally, because they are easy to fake and there are plenty of people out there who will try to deceive you," says Arthur Weinstein, a co-op and condo attorney in New York. "Also, you can have someone who owns $10 million worth of real estate but who is $11 million in debt. You need to know all their information."
Weinstein recommends that a board also ask for balance sheets of assets and liabilities and to contact the applicant's current employer.
It's also important for boards to be discreet with the information they collect. They need to limit the number of copies that are distributed and be responsible that they don't fall into other people's hands.
Let's say that an owner is doing something objectionable, like throwing parties at all hours of the night or not mowing their lawn for a month. You might think that their association board could meet and throw the miscreant out of the association, but that's not the case.
"In condos, you can't get rid of someone—you have to levy a fine and assess a fine," Byrne says. "It's almost impossible in a condominium setting to take someone's unit away from them."
"Condos have bylaws that people have to adhere to," adds Curt Macysyn, executive director of the New Jersey chapter of Community Associations Institute (CAI-NJ). "If they don't adhere to the bylaws, then the board has the ability to fine them or take other action. Removing an objectionable owner would be hard. It's not something that is done."
Things are a little different in a co-op situation. According to Byrne, an objectionable owner can be dealt with. "You would start a process of terminating their shares," he says. "The shareholder would probably disagree, but it's conceivable that a shareholder could lose his shares in a co-op for misconduct, whereas in a condo that's almost impossible."
Eisenberg says that his condo board has never thrown anyone out, although there have been cases where he would have liked to have seen it done. "It's my understanding that it is essentially impossible to remove an objectionable owner from a condo. However, in reading articles in publications such as [The Cooperator], maybe in the future that could change."
I'm From Jersey
While it is still not that common for people to be denied permission to buy into a co-op in Manhattan, it's nice to know that New Jersey co-ops don't subscribe to the same type of "selection process" that is tolerated across the Hudson.
No one who has the means to live in a place wants to be told that he or she can't because a board didn't consider him or her worthy. Says Byrne, "If a guy has enough money he can live wherever he wants. That's the American Way."
Keith Loria is a freelance writer and a frequent contributor to The New Jersey Cooperator.