Cooperative housing boards have a legitimate interest in maintaining the value of co-op apartments. This has led some boards to adopt a minimum transfer price—a floor price—below which transfers will be disapproved. However, a floor price can cause conflicts between board goals and those of selling shareholders.
A board may impose a floor price for several reasons. First, a board owes a fiduciary duty to its shareholders. To discharge that duty, a board will typically attempt to keep the value of apartment shares high; a floor price can help meet this goal. For example, if a one-bedroom apartment is sold at a below-market price, it is likely to negatively impact the value of other one-bedroom apartments in that building. However, if a floor price is imposed, the first apartment could not be sold below the floor price and the price of the next sale would not be negatively impacted. Further, a board may want to keep share prices high in order to collect higher transfer fees or flip taxes when the owner transfers the shares. These fees, if used to maintain the building’s facilities and reduce maintenance charges, should increase the value of apartments.
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