Re-Examining Our 'Right of First Refusal'
This article is based on information and views provided by Gary Strum.
Seward Park’s Right of First Refusal policy allows the Board to reject a Shareholder's application to sell an apartment to a desired person, and instead forces them to sell it directly to Seward Park at the same price. The purpose of this policy is to ensure that apartments are not sold below market value — the co-op collects a flip-tax based on an apartment's selling price, and it is therefore in our financial interest that apartments are sold for the highest possible prices. However, the policy as it exists is not at all in our community's interest.
The most disturbing aspect of the policy is the Board's right to force someone to sell their apartment directly to the co-op. Rejecting an application is one thing; conducting a hostile takeover is another. How can we justify rejecting someone's application to sell their apartment at certain terms, only to turn around and force them to sell it to the co-op at those very same terms? But worse than this dubious turnaround is the fact that we have this policy on our books to begin with. Our bylaws should protect us and our property; how can we tolerate a policy which puts us at the mercy of our Board and allows it to commandeer our transactions?
Another problem with the policy is its intention to maximize the price of apartments. A shareholder may set a low price on their property in order to assist a loved one or reduce the value of their estate. In such instances, demanding the highest price harms Shareholders, their estates, and their loved ones.
This is not to say that our financial interest should be ignored. Flip-tax provides essential revenue which goes towards maintaining and improving our community. But there are better ways to protect these interests (such as inviting the Board to bid on apartments, or periodically calculating fixed flip-tax amounts that reflect market value).
Most of us have no immediate plans to sell our property, and are more concerned with day-to-day issues, such as the responsiveness of maintenance, the renovation of the lobbies, the creation of a dog-run, etc. But it is vital to address this issue now so that it doesn't stand in our way when the time comes for us – or our heirs – to sell. As we move towards improving our facilities and services, we must also improve the procedural underpinnings according to which our co-op works. The Right of First Refusal acts against us in an arbitrary and harmful manner and should be removed.