How To Get Current Information About the Co-op or Condo.
In most New York residential transactions, all due diligence must be completed before the contract gets signed, not after. Once both parties sign the contract, there are very limited opportunities to exit the transaction (not getting a mortgage or getting turned down by a co-op Board are the most common). Reviewing the Offering Plan, financial statements of the co-op or condo and reading the Board minutes are essential, but won't give the most current information about the physical and financial condition of the building and apartment you’re considering. The best method for finding out the current status of the building and the apartment is for your attorney to question the account executive of the Managing Agent that represents the co-op or condo.
Here's a list of my favorite nineteen topics that your attorney should examine with the account executive before the contract is signed:
1. Maintenance, Assessments and Flip Tax:
What have the maintenance or common charges increases been for the last five years? Is there any special assessment in effect or contemplated? When was the last special assessment? What is the flip tax, if any?
2. Capital Improvements:
What capital improvements or service upgrades are anticipated over the next five years for the co-op or condo and how will such repairs or replacements be paid for? What capital improvements have been completed in the past five years? What repairs or replacements need to be undertaken in the apartment, if known?
3. Subletting a Co-op and Renting a Condo:
If it's a co-op, what is the sublet policy? If it's a condo, are there any limitations on rental of an apartment?
Are pets permitted? If so, what is the pet policy?
5. Known Conditions or Problems Impacting the Apartment:
Are there any problems with any apartments or owners of apartments on the buyer’s floor or on any side of the buyer’s proposed apartment that impact the buyer’s apartment. Are there any physical problems with the proposed apartment, such as leak conditions, that have not been remedied in all respects. Are there any leak conditions in any other apartments that might affect the buyer’s apartment? Are there any problems with vermin, roaches or the newest plague, bedbugs?
6. Known Conditions or Problems Impacting the Building:
Are there any building-wide problems with heating, cooling, plumbing, electricity, elevators, leaks, vermin or pest infestation (particularly bedbugs) or any other building-wide service or mechanical system? Are there any mechanical or occupant-related noise problems affecting the building or the apartment? Are there any mechanical or engineering surveys on the building available for review?
7. Electrical Service and Heat and Cooling:
What is the electrical service to the apartment? If each apartment has its own heating and cooling system, what type of system is it?
Is there any litigation threatened or pending affecting either the building, the Board, the apartment, or the owners of the apartment? Are there any tax audits pending or threatened against the co-op or the condo? Are there any governmental violations outstanding against the building or the apartment?
Have any alterations or improvements been made to the apartment? If so, have such alterations been made to the apartment with the consent of the Board and/or the managing agent? Have all necessary governmental approvals, consents and sign-offs been obtained? Are there any restrictions on alterations?
11. Environmental Issues:
Was an asbestos survey done? Were there any problems? Are there any other known environmental conditions that were remedied or are presently a problem?
12. Security Issues:
Are there any security problems affecting the building or the apartment?
13. Owner Occupancy Issues:
How many apartments are presently rented or sublet? How many apartments are owner-occupied? How many sponsor or investor units are there in the building? What is the status of any apartments in arrears in the payment of maintenance or common charges? How significant is the problem?
14. Building Reserves and Financial Condition:
What is the balance of the building's cash accounts and reserve fund, if any. What is the present financial condition of the building in the opinion of the managing agent? If there has been a refinancing since the date of the financials, what are the terms of the new mortgage?
15. Commerical Units:
Are there any commercial units? Does the co-op or condo benefit from the leases or does the sponsor or an investor receive the rental income? If so, what are the terms of the leases and who benefits from the rental income? Does the income from the commercial leases create any tax issues for the co-op (known as an “80/20 problem”).
16. Landmark Status:
Is the building designated a landmark or located in a landmark neighborhood?
17. Construction in Adjacent Areas:
Is there any construction planned near the building that could impact the light and view from the buyer’s proposed apartment?
18. Sponsor Issues:
If there are sponsor or investor units, how many units are there and have there been any problems with the sponsor or investor or the tenants occupying those units? Is there any litigation pending or recently completed with the sponsor or with any investor?
19. Other Material Issues:
Is there any other adverse physical or financial issue affecting the co-op or condo, the building, the Board, the seller or the apartment that has not been previously disclosed?
Residential Reality: Get As Many Answers As You Can
Don't expect to get a definitive answer to every question. Sometimes the account executive just doesn't know, is new at the building or is too busy to address your concerns. I think most folks involved in the residential real estate process would agree that some managing agents are quite good and others are simply horrible. That quality of the managing agent greatly impacts on the quality of the answers. Many times the managing agent will only provide their co-op or condo "questionnaire", which usually has the basic information that a bank will require. Some questionnaires are better than others, and many times the managing agent charges for the questionnaire (seriously). Nevertheless, if you find that basic information about the building's financial or physical condition or about your apartment is being withheld or is selectively or reluctantly given, the old red flag should be hoisted about the quality of the management of the building.