Traditionally, boards of directors in residential cooperative buildings had broad, largely unchecked discretion to reject prospective tenants and shareholders. That discretion has narrowed. Using race, ethnicity or religion to reject prospective tenant and shareholders has been unlawful for many years. More recently, the presence of a service animal is no longer a valid basis for rejecting an applicant. The same is true for certain criminal records. Individuals listed on the New York State sex off ender registry may be identified, and depending on the circumstances, there may be a basis for further review.
This year, the City Council has created, by Local Law 58 of 2026, strict timelines for review of purchase applications. Boards have 15 days from receipt of a purchase application to notify the buyer of missing information. If the deadline is missed, the application is deemed complete.
Once the application is complete, boards have 45 days and a single 14-day extension to approve or disapprove the application. If a board wants more time, the board must obtain the buyer’s consent.
If a board fails to formally respond to a complete application within the 45 days and any extension, the managing agent and volunteer board members may be liable for fines of $1,000 for the first offense, $1,500 for the second violation and $2,000 for the third and all subsequent violations. (The fine structure only applies to buildings with 10 or more residential units.) If a board explicitly discloses a summer recess in board meetings, in the by-laws or house rules, the timeline is automatically paused for the summer recess.
The procedure for the buyer or the seller is to file a complaint with the New York City Department of Housing Preservation. The violations are then adjudicated by the New York City Office of Trials and Hearings (OATH).
OATH is a trial and hearing agency housed in the executive, not judicial branch of New York City government. It hears all adjudicatory disputes arising out of New York City administrative actions. OATH has three divisions. The Trials unit hears high-level disputes including vehicle seizures, license revocations, contract disputes, employee disputes and human rights claims. The Hearing unit hears cases based on city agency summons, such as building code violations, sanitation violations and other municipal agency violations. The Special Education division hears cases involving services and place for children involved in Department of Education special education programs.
The fines for violations of Local Law 58 of 2026 will be heard by the Hearings Division. The fi nes will be issued by HPD, assessed against the building, the managing agent and/or individual board members who will receive notice by mail. There will be dates for payment of the fines or to appeal. If the fine is appealed to the Hearings Division, there will be a trial. Trials are informal, but do have a requirement that the City prove the violation by a preponderance of the evidence or that it is more likely than not that the violation occurred. Generally, the City prevails on about 55% of the cases that go to hearing. The City has a higher rate of success on cases arising out of HPD violations.
If the fine is upheld at the Hearings Division, the respondent has a right to appeal. Appeals are heard only on written submissions. Only about 10% to15% of appeals are successful. If the fine is upheld, the only appeal is an Article 78 to the Courts. Article 78 is not a new hearing; the Court examines whether the process of sustaining the fi ne was fair and lawful. There is a low likelihood of success on an Article 78 arising out of a municipal agency fine. Accordingly, it is crucial for boards and managing agents to avoid these fines and respond to prospective buyers in a timely manner.
If a board is found to have delayed a response beyond the 45 days together with any extensions, the board will have three additional problems. It may be liable for damages if a mortgage rate lock expires as a result. Second, the usual defense of the business judgment rule is weakened by a fi nding that the board violated the law in delaying a response. Finally, it may expose the board and managing agent to housing discrimination complaints. The sustaining of the fine at the Hearings Division may estop any further challenge to liability.
For a best practices solution, boards and managing agents should be asking their counsel for assistance in dealing with Local Law 58 of 2026. All proposed purchase agreements should be calendared and the managing agent and all board members informed of the deadlines. Managing agents should be responsible for ensuring a timely response to a prospective buyer.
This column presents a general discussion. This column does not provide legal advice. Please consult your attorney for specific legal advice.
Carol A. Sigmond
Partner
Nossaman LLP
12 East 49th Street, 22nd Floor
New York, NY 10017
