Whether Co-op Boards Can Reject Purchasers for a ‘Too Low’ Sales Price
Adam Leitman Bailey and John Desiderio discuss ‘Stromberg v. East River’ which provides new guidance on when co-op boards may consider sale price in rejecting a purchaser without losing protection under the business judgment rule.
In 2022, in a prior article, the authors concluded: “Until there is a clear holding by an appellate court that outlines the parameters within which a co-op board may or may not reject a sale for a ‘too low’ sale price, it [would remain] an open question whether or not board rejection of ‘too low’ share transfers can be said to violate the business judgment rule.” See Bailey and Desiderio, “Whether Co-op Boards Can Reject a Sale Because the Purchase Price is ‘Too Low’” (NYLJ, June 28, 2022). In its recent decision, in Stromberg v. East River Housing Corporation, 241 AD3d 445 (1st Dept. 2025), the First Department dismissed East River’s counterclaim “for a declaratory judgment that its “board of directors may properly consider an apartment’s sales price when deciding whether to grant or withhold consent to a sale.” (Emphasis added).
Ironically, in dismissing East River’s counterclaim, the court noted that plaintiffs “[did] not dispute that defendant may consider the purchase price;” but, “rather, they contend[ed] that the price may not be the sole criterion considered in approving or denying an application” (Emphasis added, italics in original), and, therefore, the court concluded,
The only question, as recognized by the motion court, is whether the particular manner in which defendant considered the apartment’s sales price was legally permissible, and defendant is not seeking a declaratory judgment on that issue. Therefore, no justiciable controversy exists (see CPLR 3001), and the declaratory judgment counterclaim was properly dismissed. (Emphasis added, italics in original).
Thus, while not squarely holding for or against the issue raised in East River’s counterclaim, the court’s ruling suggests, for the first time in an appellate court decision, that consideration of the sale price, in any board sale rejection, will not automatically remove the protections afforded to board action by the Business Judgment Rule, if sale price is “ not…the sole criterion considered in approving or denying an application.”
Accordingly, on East River’s motion for summary judgment, the First Department noted that the “parties sharply dispute whether a minimum sale price floor was implemented by defendant” and held that “[t]he motion court properly found that issues of fact exist as to whether the business judgment rule applies to defendant’s rejection of the sale application.”
Significantly, regarding said fact issues, the First Department here cited Singh v. Turtle Bay Towers Corp., 74 AD3d 568 (1st Dept. 2010) to be compared with Oakley v. Longview Owners, 165 Misc2d 192 (Sup Ct, Westchester County, 1995).
The Cases Cited in Stromberg on Issues of Fact Related to ‘Price’ Consideration
In Singh, the First Department had affirmed denial of purchaser plaintiffs’ application “for an injunction prohibiting defendants from issuing or transferring the share of stock and proprietary lease to the subject apartment to anyone other than plaintiffs and to stay all proceedings by defendant to issue, transfer, and affect the stock shares and proprietary lease of said unit.” The court held:
Defendant exercised its right of first refusal to deny [plaintiff’s] purchase application, and there is no question that plaintiffs were aware of the valid, enforceable right of first refusal and that they agreed to be bound by it.
In so holding, the Singh court cited to Anderson v. 50 East 72nd Street Condominium, 119 AD2d 73 (1st Dept. 1986), which had held that “the preemptive right of first refusal granted to defendant condominium board to purchase, at the same price terms, a unit offered for sale by an owner, does not constitute an unreasonable restraint on alienation of such unit and is not subject to invalidation by the statutory ‘Rule Against Perpetuities’ for remote vesting.” (Emphasis added).
Singh also noted, in dicta, that “the decision to deny the purchaser application was based upon a determination that the purchase price for the subject unit was significantly below market value,” (Emphasis added). Nevertheless, Singh’s dicta was not related to the court’s consideration and approval of the Board’s rejection.
By contrast, in Oakley, the reasons for denying the sale were (a) that the sales price was “less than a cooperative wide floor price recently adopted by the board,” after an appraisal of only two oneand-two- bedroom apartments in the 160-unit complex, and (b) “dissatisfaction with the demeanor of the prospective purchaser.”
In denying defendant’s motion to dismiss plaintiff’s complaint, the Oakley court noted, “[W]hat the law condemns is, not a restriction on transfer, a provision merely postponing sale during the option period, but an effective prohibition against transferability itself.” (Quoting Allen v. Biltmore Tissue Corp., 2 NY2d 534, 542 (1957)).
The court held that the restraint constituted an “open-ended and potentially long-lasting prohibition,” and, “as adopted” was an unreasonable restraint on alienation. See also Marine Midland Bank v. White Oak Cooperative Housing Corp. 1997 WL 34823122 (Sup Ct, Westchester County, 1997) (Held: Cooperative’s requirement that plaintiff sell its shares at a price set by it to be approved was an unreasonable restraint on alienation.)
Respecting “the denial based on the demeanor of the purchaser,” the Oakley court held “the board may arguably be said to have been acting within its authority,” but, “[t]his presents a question of fact, given plaintiff’s allegations of bad faith and discriminatory treatment and defendants’ denial of these allegations.”
‘Price’ Fact Issues Left to the ‘Stromberg’ Trial Court
The Stromberg motion court had concluded that undisputed portions of a broker’s affidavit, coupled with the broker’s appraisal, which it found admissible, raised “a material dispute of fact about whether East River denied the 2022 sales application for an assertedly insufficient sales price— despite having reason to believe that the proposed sales price was in line with the unit’s market value,” and also because “a material issue of fact exists about whether East River denied the 2022 sales application for being below an arbitrary price floor—a ground for denial that would not be shielded by the business judgment rule.” (emphasis added) Citing Chappell v. Trump Plaza Owners, Inc., 2011 NY Slip Op 32661[U], at *6-11 [Sup Ct, NY County 2011].)
In Chappel, the court had denied defendant’s motion to dismiss, holding that “defendant has not established that plaintiff fails to state a cause of action for unreasonable restraint on alienation where the purpose of the restriction (which allegedly prevents sales at market price) is not established, the duration of the restriction is unlimited, except by amendment of the proprietary lease, and, there is no designated method for fixing the purchase price.” (Emphasis added)
A New Synthesis on Sale ‘Price’ Fact Issues
The above review shows that Stromberg has provided guideposts for courts to follow in evaluating whether the business judgment rule will apply to board rejection of a particular cooperative sales transfer. The Court’s citation to Oakley, and its approval of the motion court’s finding on the issues of fact which exist in Stromberg (i.e., (a) whether East River denied the 2022 sales application for an assertedly insufficient sales price, and (b) whether East River denied the 2022 sales application for being below an arbitrary price floor), indicates that sale rejections, based on or tied to restrictions or limitations which prevent sales at market price, will fall outside the protections of the business judgment rule.
On the other hand, the court’s citation to Singh (and Singh’s incorporation of the right-of-first-refusal paradigm approved in Anderson) indicates the type of “price” consideration that boards may include in their consideration of a particular sales transfer—“the reasonableness of the restraint, judged by its duration, price and purpose.” Anderson, supra, 119 AD2d at 78.
Nevertheless, Oakley indicates that in cases where a sales rejection is based on multiple reasons, some of which may serve valid corporate purposes, but only part of which are “price-related,” the business judgment rule will not protect a price-related reason that prevents or prohibits, or unduly delays, a sale at market price.
Conclusion
The above discussion shows that Stromberg has provided appellate parameters, within which a coop board may or may not reject a sale for a price-related reason. The legal principles to be applied are unchanged, and the resolution of each such rejection will still be dependent upon the facts and circumstances of each case, but attorneys representing boards will need to review the policies and practices of their clients to be certain they understand the parameters.
Attorneys must ensure that, when and if “price” becomes an issue in any approval process, board members understand that “price” rejections, which prevent or hinder a seller’s ability to sell its unit at market price, will be fatal to the co-op’s interests—certainly if “price” is the sole basis for the rejection, but also even if price is only part of the board’s consideration, if the rejection ultimately prevents a sale at market price.
Adam Leitman Bailey is the founding partner of Adam Leitman Bailey P.C. John M. Desiderio is a partner at the firm and chair of its real estate litigation group. Alexander Constantis and Max Richardson, law externs of the firm, who are attending the Maurice A. Deane School of Law at Hofstra University, assisted in the preparation of this article. Adam Leitman Bailey P.C. represented respondent Stromberg in East River’s First Department appeal.