You Don't Wanna Do That
June 13, 2010
A Rule To Keep In Mind...
Many years ago, my wife and I renovated an old house in Wilmington, NC. We were fortunate enough to be assisted by our good friend, Jim Kneisley, who was, and is, a master builder. We would come up with one bright idea after another, and he would always respond the same way: “you don’t wanna do that”. An explanation of why our proposed design scheme was misguided would follow…The same rule can be applied to co-op and condo ownership. There are many things to be avoided when purchasing or owning an apartment. Here begins my list, with five of my favorites:
Don’t Fudge Your Financials
With few exceptions, the entire planet has been downsized. Accordingly, satisfying the financial requirements for a co-op purchase are more challenging than ever. Despite the fact that all financial information, including complete tax returns, has to be submitted accurately and with sufficient back up, there is a tendency, shall we say, to stretch reality in order to put your financial picture in the best light. Exaggerating your net worth or overstating your income when it comes to making an offer on a co-op is a very bad idea. Cooking the books can result in losing your deposit (or at least fighting to get it back), if it turns out your purchase application was made in bad faith. If you have had a bad year or two, think about a condo…
Don’t Expand Your Renovation Beyond the Stated Scope of Work
Renovating or upgrading a co-op or condo can be as complicated as a filing with the SEC. Plans have to be submitted to the co-op or condo Board, as well as the New York City Department of Buildings. In most cases, the plans must also be reviewed and approved by the co-op or condo’s architect (at the owner’s expense). Sometimes an owner will try to pull a “fast one” and expand the alteration beyond the scope of what has been submitted to the Board as a part of the “Alteration Agreement”. Unapproved alterations can impact your ability to sell the apartment, if the unapproved alterations are discovered when your purchaser’s attorney undertakes the pre-purchase due diligence. If the undisclosed changes are material or delay the project beyond the promised completion date, significant penalties can kick in for late completion and worse, the Board has the power to stop the work altogether by court order when the additional alteration goes beyond what has been approved. Particularly where the owner is going beyond the scope of work and is not complying with applicable building codes, attempting to sneak one by the Board can have unintended and disastrous results.
Don’t Violate the Pet Policy
Let’s face it, some people understand the desire to have a pet and for others, it’s a total mystery. It follows that some buildings are pet friendly and many buildings are very pet unfriendly. Once you know that a building is not pet friendly, it is a mistake of monumental proportions to contemplate violating the pet policy of the building. The “Pet Law” in New York City (applicable to all co-ops and to condos in Brooklyn, Queens and Staten Island) may allow a pet owner to keep the pet on technical grounds, if the ownership of the pet was open and notorious for 90 days and no legal action was taken by the co-op or condo to force removal of the pet. Using this statute as a pet retention technique, however, usually has costly results for the pet owner, both financial and emotional. There are situations where someone legitimately needs a service dog (for physical or mental health reasons). In those verifiable cases, applicable law requires the co-op or condo to allow the owner to harbor the pet. MEMO TO FILE: If you love your pet and want to insure that your dog or cat continues to take up too much room on the bed, approval of your pet must be a condition of your contractual obligation to go forward with the transaction. A final note. There is a disagreement between two of the Appellate Courts in New York as to whether the Pet Law applies to condos. Hopefully, the confusion will be resolved by the Court of Appeals or by amending the statute.
Don’t Rely on the Attorney General’s Office to Resolve a Dispute
Here’s a fun fact: The New York Attorney General’s Real Estate Division gets 1,100 complaints a year. They have four enforcement attorneys. The review by the “AG’s Office” of hundreds of offering plans and thousands of amendments to those plans each year, is a daunting task to say the least. When you throw in the huge number of complaints that the AG receives each year, it starts to border on absurdity. Despite their best efforts, the AG’s office is understaffed and things take a very, very long time to get resolved. When a serious dispute arises with a sponsor after completion of the offering, or while units are being sold, litigation will almost always be required to resolve the dispute. In most cases, the AG’s Office is not in a position to intercede on behalf of the wronged party to bring the matter to an expeditious conclusion. If pre-purchase due diligence reveals an ongoing dispute of any significance with the developer of the condo, keep looking…
Don’t Assume that New Construction is Free From Defects
As long as we’re talking sponsors, a few words about construction defects. To say that the quality of construction varies greatly from one new condo to another, is the understatement of the year (and of the decade). With sales down, inventory up and construction financing tight, developers are struggling to complete projects and to hold onto their properties during this difficult economic time. As a result, the quality of construction has taken a beating. Unfortunately, it can take several years for the owners of a new condo to know whether there are any serious construction defects that will have to be addressed, with or without the sponsor’s financial assistance. Most offering plans attempt to exonerate the developer from construction defects and place the responsibility and liability with the construction company. Accordingly, when a significant problem does arise, everybody “lawyers up” and the litigation cat and mouse game begins. The state-of-the-art kitchen and other cutting edge architectural details can be a strong hypnotic that gets you to sign the purchase agreement on a building not yet out of the ground. That being said, be extremely cautious about the developer’s track record, if there is one, and consider having an architect or engineer review the technical description of the proposed construction appended to the Offering Plan. Most importantly, accept the fact that construction in New York is a very complicated and lengthy process where anything can and will happen. For that reason alone, a building with at least three to five years of operating history can make a potential purchase significantly less risky.
Residential Reality: So Many Issues, So Little Time...
From unstoppable water leaks, to low owner-occupancy, to undesignated roof rights, to paper-thin walls, there are many issues that can wind up costing a purchaser or owner significant time and money. Many problems can be avoided simply by not pushing the envelope of what’s permitted in your co-op or condo and by resisting the urge to sprint to the signature line of a purchase agreement. At the end of the day, purchasing and owning an apartment in New York is subject to its own set of somewhat crazy rules of engagement. Just make sure you play by the rules.