CoopAndCondo.com - Addressing the realities of Residential Real Estate

From the Law Office of Ronald H. Gitter, Esq.

What To Do When Your Apartment is Possessed

       
What To Do When Your Apartment is Possessed

What happens when the Seller wants to stay in the apartment you're buying after the closing?

As a general rule, when someone purchases an apartment, he or she expects the seller to deliver possession of the apartment at closing. In other words, when you pay your money at closing you get an empty apartment that you can move into whenever you want. Because of the complexities of modern life, the seller may not be able to move out of "your" apartment for several days, weeks, or sometimes, even months after the closing date. What actually happens when the seller wants to stay in possession of your apartment after closing?

Possession is Given at Closing

To begin with, the seller can only stay in the apartment after closing with the consent of the buyer. If the seller simply refuses to leave or to remove seller's personal property from the apartment, in most cases, the closing will get adjourned until the seller gets it together. It's a whole other can of worms, however, if the seller just plain out refuses to close. I discuss this issue in "What Happens When A Party Defaults", elsewhere on the site. In short, when that happens, it’s an awful situation. For purposes of this discussion, I will just be looking at those friendly closings where the seller is permitted by the buyer to stay in occupancy of the apartment after the closing.

The Logistics

Post-closing possession is more common out in the burbs as a seller may need a day or two to pack up the house and kids and move on. It's only recently that possession agreements have popped up in residential apartment transactions in Manhattan and the other boroughs. In most cases, the seller's attorney will notify the buyer's attorney when the contract is being negotiated that the seller will need a little time after closing before possession can be given. This request can present a real problem if the buyer has nowhere to go after the closing date. In those situations, a seller's need to remain in possession can kill a deal. In other cases, the buyer may want more time before he or she moves in, so the seller's request can turn out to be a win-win for both parties. For example, if the buyer is also in the process of selling an apartment, having more time after the closing will be very helpful in defraying expenses (as explained a little later). Although possession arrangements should be avoided as much as possible, in the hectic and complicated world that most people operate in today, getting everyone to the closing table and the seller out on the same day is not always possible. Here's what's involved in a possession arrangement:

The License Agreement

In the old days, the seller remained in possession pursuant to the terms of a "possession agreement." This brief agreement (sometimes one page) would describe the seller's continued possession and would establish a monetary escrow (held by one of the attorneys) as security against the seller's failure to move out. If the seller was late in moving out, a daily penalty would be incurred (e.g., $100 per day) to reimburse the buyer's costs for seller's failure to timely vacate the apartment. The escrow fund would also be used to reimburse the buyer for any damage caused by seller or seller's agents (that is, anyone invited into the apartment with seller's consent). Today, the possession agreement is more involved and is often referred to as a "license agreement." Why?

Nature of the Seller's Occupancy

When you allow the seller to remain in possession, a certain relationship is created between you as the apartment owner and the seller who continues to occupy the apartment. It is of great importance to insure that a landlord-tenant relationship is not created between you, the buyer as the new owner and the seller as continuing occupant. If a landlord-tenant relationship does come into existence, then a buyer would have to go into landlord-tenant court to get the seller out of the apartment if the seller refuses to leave. That can be difficult and time consuming and the last thing a buyer wants to do. To avoid this problem, the buyer should only give seller a "license" to occupy the apartment, which is merely an occupancy right revocable by the party granting the license on the terms stated in the license agreement. The license agreement will also specifically state that no landlord-tenant relationship is being created between the buyer and the seller when seller remains in possession. Although it is technical, this concept is very important. New York courts can be very tenant friendly. Getting your seller out of possession in landlord-tenant court can take months and big bucks. Just to say it again: You don't want your seller who remains in possession after closing, to be deemed your tenant under any circumstances.

Reimbursement of Expenses

When the seller stays in possession, the buyer's carrying costs for the purchased apartment should be borne by the seller until the seller vacates the apartment. Here are the costs usually reimbursed by seller:

  • the per diem interest expense of the buyer's new mortgage loan;

  • the per diem maintenance or common charges for the apartment; and

  • the per diem real estate tax charges, if it's a condo.

These costs represent the costs the buyer would incur as the owner of the apartment (except for home owner's insurance). In addition, all utility charges will be paid by the seller and the seller will remain the party who is billed for the utilities until seller moves out. If you happen to be a buyer who is also selling an apartment and the closing of the sale will not take place until after you purchase your new apartment, having the seller remain in possession can help defray the cost of carrying two apartments.

Longer Term Post-Possession Arrangements

In some cases, the parties will agree to allow the seller to remain in possession for a number of months. In those cases, a monthly occupancy fee is negotiated that is commensurate with the value of the apartment as a rental and the monthly costs can significantly exceed the basic carry costs of the buyer.

Basic Terms in the License Agreement

License agreements can vary, but here is a list of the provisions which should be included:

  • seller's promise to vacate the apartment and remove seller's property on the date agreed to by the parties;

  • seller's promise to make any repairs or fix any damage caused by seller or seller's agents during seller's possession;

  • seller's promise to reimburse buyer's carrying costs as described above;

  • an indemnity from seller that holds purchaser harmless from any loss, liability or damage (including attorneys fees and expenses) if seller or seller's agents cause damage to the apartment or if seller breaches the provisions of the license agreement, such as refusing to vacate the apartment when agreed;

  • where a longer term post-occupancy arrangement is agreed to, the monthly occupancy fee that will be paid by the seller for the privilege of remaining in the apartment;

  • a significant escrow to be held by the seller’s attorney to insure the seller’s performance under the agreement;

  • a significant daily penalty to be paid by the seller if the seller fails or refuses to vacate the apartment after the departure date that is agreed upon;

  • seller's consent to an entry of a judgment of eviction if the seller does not leave by the date agreed upon, so the buyer can get the seller out of the apartment expeditiously, if the seller refuses to go gently into the good night;

  • a specific statement that no landlord-tenant relationship exists between the parties; and

  • a promise by seller to maintain adequate comprehensive liability and property insurance with appropriate coverage amounts while seller remains in possession.

What About Penalties if the Seller Refuses to Leave

How do you determine how much money to hold in escrow to insure that the seller will leave as promised? Obviously you have to take the purchase price into consideration. That being said, the buyer should try for the largest hold back possible. The more leverage the buyer has, the larger the escrow the buyer can ask for. Just to throw out numbers, it would be appropriate to hold one or two percent of the purchase price, but certainly no less than $5,000.00. Daily penalties can vary widely (as little as $100 a day, in some cases $1,000.00 a day or more). Here's a good rule of thumb, it should never be cheaper for the seller to stay in your apartment than it would be for the seller to check into a hotel in Manhattan. If you agree to a daily penalty of $150 or $200 a day, it will be cheaper for the seller to pay the penalty rather than go to a hotel. If the seller knows it will be very expensive to holdover (like staying at The Four Seasons), there is a greater likelihood that problems will be avoided. Although every negotiation is a little different, when the seller remains in possession, it's always in the buyer's best interest to hold as much money as possible in escrow and to collect the biggest daily penalty as possible if the seller refuses to leave.

Remember, An Exorcism Should Not Be Necessary

If the possession arrangement is worked out sensibly, the buyer will not have to go to extremes (and to court) to get the seller out of the buyer’s new apartment after closing. Each deal is a little different and each post-occupancy agreement should be tailored to fit the needs of the parties. There is no one size fits all, when it comes to these arrangements.

Residential Reality: Post Closing Possession is Sometimes Required

As long as the buyer and buyer's counsel are comfortable that the seller has somewhere to go after closing, and assuming that the license agreement is properly drafted, allowing the seller to remain in possession is sometimes necessary and appropriate to make a deal work.

Simplifying the complexities of Cooperative and Condominium transactions in New York City

Asked and Answered

Q

I don’t smoke, but the smell of smoke is wafting into my apartment from my neighbor. Is there anything that can be done to remedy this condition?

Click for Answer...

Q

I’m selling my co-op tomorrow and my bank attorney has not yet received the stock certificate and proprietary lease from my bank. Will the closing have to be adjourned?

Click for Answer...

Q

The seller has indicated that there was a leak in the bathroom from the apartment above that has been repaired in all respects? Can I rely on seller’s representation to that effect in the contact?

Click for Answer...

Q

My mortgage lender has informed me that the cooperative in which I am purchasing an apartment has inadequate insurance coverage and has requested that the co-op increase its coverage to meet the bank’s new minimum requirements. Can the bank withdraw its underwriting due to a lack of insurance coverage by the co-op?

Click for Answer...

Q

The commitment letter included a condition that my loan was subject to a “second review” by the investor to whom the loan will be sold. Has my commitment letter been issued?

Click for Answer...

Q

Can I purchase my co-op in the name of a trust?

Click for Answer...

Q

Can I allow the seller to remain in possession after closing?

Click for Answer...

Q

There’s a repair needed in the apartment that the Seller promises to remedy after the closing. Is that a good idea?

Click for Answer...

Q

Do I care who the bank attorneys are?

Click for Answer...

Q

Do I have to go to the closing?

Click for Answer...

Q

One of the conditions in my loan commitment states that the monthly maintenance cannot increase by more than five percent? Is that a problem?

Click for Answer...

Q

Can I have a roommate after I purchase my co-op apartment?

Click for Answer...

Q

Can I undertake renovations before the Closing?

Click for Answer...

Q

Do I need a home owner’s insurance policy for my apartment at the time of my closing?

Click for Answer...

Q

Should I let the broker do the walk through?

Click for Answer...

Q

Once I get a loan commitment, is my loan approved?

Click for Answer...

Q

When it comes to purchasing an apartment, what exactly is due diligence?

Click for Answer...

Q

Do I have to let the maintenance people in to fix a building system?

Click for Answer...

Q

Does my dog have to be interviewed by the Board?

Click for Answer...

Q

Is buying an apartment in a small building a good idea or a bad idea?

Click for Answer...

Q

Can I fudge on my numbers in my financial package to the Board?

Click for Answer...

Q

Should I use a mortgage broker or should I go direct to a bank?

Click for Answer...

Q

Should I have the apartment inspected before I sign the contract?

Click for Answer...

Q

Do I Really Have to Give the Board My Tax Returns?

Click for Answer...

Q

I am purchasing an apartment with extensive landscaping on the terrace. Can the co-op or condo make me remove landscaping that was existing at the time of my purchase?

Click for Answer...

Q

I have an opportunity to buy a garage space, but the sponsor is calling the arrangement a “license” rather than a “purchase”. Does that matter?

Click for Answer...

Q

We are considering an apartment that will require us to move the bathroom to another location in the apartment. Is such a move possible?

Click for Answer...

Q

The seller’s bank can’t locate the stock and lease for the co-op closing. Can we still close?

Click for Answer...

Q

The broker told me that I can adjourn the closing for 30 days? Is that correct?

Click for Answer...

Q

The Offering Plan for my condo indicates that the apartment has a “lot line” window. Is that a problem?

Click for Answer...

Q

My dog bit someone in the lobby and I have been notified that if it happens again, my dog will have to go. Does the Board have the power to restrict me from having a pet?

Click for Answer...

Q

There is an unobstructed view from the apartment I am considering, but there is a vacant lot directly in front of that side of the building. Is that reason for concern?

Click for Answer...

Q

The Managing Agent called and it looks like my finances will not be sufficient to get Board approval. Is there anything I can do?

Click for Answer...

Q

The managing agent has had our application to purchase a cooperative apartment for three weeks and nothing has happened. Is there anything we can do to move things forward?

Click for Answer...

Q

We are considering an apartment in a co-op where the sponsor still owns units. Is that a problem?

Click for Answer...

Q

The seller’s apartment presently has a storage unit. Does the storage unit transfer with the apartment?

Click for Answer...

Q

We’re closing in three weeks, but our lease is up next week. Can we move in before the closing?

Click for Answer...

Q

I just did the walk through on the purchase of a sponsor unit and we have an extensive punch list. Will the punch list be completed by the time of closing?

Click for Answer...

Q

I’m buying an apartment from a sponsor and the Offering Plan requires me to pay the sponsor’s transfer taxes and attorneys fees. Do I have to?

Click for Answer...

Q

The purchase price of my apartment is over $1,000,000.00. Is the transaction subject to the “mansion tax"?

Click for Answer...

Q

I’m selling my apartment, but I’m not a resident of New York State. Are there any special closing costs?

Click for Answer...

Q

We did the walk through and the apartment was filthy. The contract required the apartment to be “broom clean”. Can we complain at the closing?

Click for Answer...

Q

I have to sell my apartment in order to afford the new one I’d like to buy. Can the contract be contingent on the sale of my existing apartment?

Click for Answer...

Q

I’m a famous person (no, I really am) and I really don’t want my financial information given to eight strangers on a co-op Board. Is there a way to avoid that?

Click for Answer...

Q

I’m the executor of the estate of a deceased shareholder. Do I have to go to the closing?

Click for Answer...

Q

I just graduated law school and have a job with a large law firm. I have a significant salary, but no liquidity or significant assets. Will I be able to buy a co-op?

Click for Answer...

Q

The listing indicates that the apartment has “roof rights”. How can I be sure?

Click for Answer...

Q

When buying a condo, is it worth the time and effort to get an assignment of the seller’s mortgage?

Click for Answer...

Q

The Seller removed an expensive chandelier right before Closing. Is that permitted?

Click for Answer...

Q

My husband and I found an apartment we love, but there’s a bidding war. Should we participate?

Click for Answer...

Q

We love the apartment, but the building has bad financials. Should we go ahead?

Click for Answer...

Q

My closing is in December, but the lease for my apartment does not expire until the following March. What do I do with my lease?

Click for Answer...

Q

We are buying a condo, but we have a delayed closing as the seller has a tenant in place for the next six months. We will be able to retain our loan commitment for an extended period of time?

Click for Answer...

Q

Should my husband and I take title as tenants by the entirety, tenants in common or as joint tenants?

Click for Answer...

Q

When a gay couple buys the shares of a cooperative or buys a condominium apartment, what is the best way to hold title?

Click for Answer...

Q

I have not been able to make my co-op mortgage payment for the past three months. If the bank declares my loan in default, how long will it take before the bank forecloses on my apartment?

Click for Answer...

Q

A co-op owner asks: I have found that maintenance is usually higher in coops than in condos because of the contribution by the shareholders to the building's underlying mortgage payments. In condos, the unit owners only pay for real estate taxes and common charges for common areas. Will the monthly maintenance be reduced after the underlying mortgage has been fully amortized?

Click for Answer...

Q

Can a corporation or other business entity own the shares of a cooperative apartment?

Click for Answer...

Q

I’m buying an apartment in a building designated as a “landmark.” Should I be concerned?

Click for Answer...

Q

I am buying a co-op that needs major renovations. The super has offered to do the work at a significant discount. Is that a good idea?

Click for Answer...

Q

We just submitted the Board package and we realize that we neglected to disclose a lawsuit against my husband’s company, in which my husband is named as a defendant? The lawsuit is covered by insurance and my husband is indemnified from liability by his employer. Should we notify the managing agent and amend the purchase application?

Click for Answer...

Q

We are negotiating the contract and we just found out that there is a substantial assessment that will go into effect the month that we close on the purchase. Should the assessment be deducted from the purchase price at closing?

Click for Answer...

Q

The bank attorney was two hours late to the closing. Was that my attorney’s fault?

Click for Answer...

Q

I’m buying a cooperative apartment in Manhattan, but I move out to the Hamptons from June to the end of September each year. Will I be able to sublet the apartment each year when I’m away?

Click for Answer...

Q

I just got the purchase application package and it's twenty pages long. Should my broker be helping me with organizing the required documents?

Click for Answer...

Q

It’s the day before the closing and I just found out that the maintenance for the apartment is higher than the maintenance stated in the contract. Is that grounds to terminate the contract?

Click for Answer...

Q

The financials for the condo are more than a year out of date and there is a delay issuing the new financials. Should I be concerned?

Click for Answer...

Q

The contract requires “official bank funds” in the form of certified or official bank checks. Can I bring “official" checks from my brokerage account?

Click for Answer...

Q

My parents want to buy me an apartment while I’m in graduate school in Manhattan. Will a co-op allow me to purchase the apartment, if my parents are co-owners?

Click for Answer...

Q

I obtained sole ownership of my condo in my divorce, but the deed for the apartment is still in both of our names. Will my ex-spouse’s cooperation be required when I’m ready to sell the apartment?

Click for Answer...

Q

I just found out I have to pay a fee to have my mortgage recorded. Is that right?

Click for Answer...

Q

I am buying an apartment in a small building and I just found out that the elevator is being renovated and will be out of service for three months. Do I have to close if the elevators will not be operational on the closing date?

Click for Answer...

Q

My husband and I own a co-op and we would like to transfer the shares to an irrevocable trust that we recently created for estate planning purposes. Will our cooperative allow us to make that transfer?

Click for Answer...

Q

The seller is a foreign citizen and does not have a social security number. Does that prevent the seller from selling the apartment?

Click for Answer...

Q

An “assessment” was imposed by the co-op Board after the contract was signed. Is payment of the assessment the seller’s responsibility?

Click for Answer...

Q

There is a leak in my apartment and the Resident Manager is not being responsive. Should I call the Board president?

Click for Answer...

Q

I just bought an apartment and I am only refinishing the floors and repainting. Do I need the consent of the Board before I get started?

Click for Answer...

Q

The co-op I’m interested in is pet friendly and I have a dog. Is there any chance the Board could approve my application without approving my pet?

Click for Answer...

Q

We purchased our apartment in January, but our first mortgage payment is not due until March 1st. Why isn't the first payment due February 1st?

Click for Answer...

Q

I’m buying an apartment from a sponsor and the contract does not provide for a “mortgage contingency”. Is that a provision that I can negotiate into the contract?

Click for Answer...

Q

I am buying an apartment from a sponsor and the contract provides for the buyer to pay the sponsor’s transfer taxes and legal fees? Is that normal?

Click for Answer...

Q

I'm buying a condo and my attorney just ordered the "title report". What's a title report?

Click for Answer...

Q

There is a leak in my apartment and the Resident Manager is not being responsive. Should I call the Board president?

Click for Answer...

Q

My boyfriend and I are interested in buying our first apartment in a new construction condominium. Our mortgage broker tells us we should qualify for a 90% loan, but it will be a close call for the bank. The sponsor wants us to sign a “no contingency” contract. Is that a good idea?

Click for Answer...

Q

We are considering a condo purchase in a new development that is only 25 percent sold. There is a bank that has approved the project and will make the loan, but should we be concerned about the number of units that the sponsor still has to sell?

Click for Answer...

Q

We are buying an apartment that has been extensively renovated. Among other things, the size of the master bath was significantly increased. Can we rely on a representation in the contract that all required approvals were obtained from both the Cooperative Corporation and from the New York City Department of Buildings?

Click for Answer...

Q

We received a draft of the contract of sale for the cooperative apartment we are buying and our social security numbers are on the front page! Our attorney told us that we will have to provide our identification numbers to the managing agent for a credit check as a part of the Board package, so it’s not a big deal. Do we have to list our socials on the contract?

Click for Answer...

Q

The listing stated that the apartment was 1,100 square feet, but the appraisal measured the apartment at 900 square feet. Can we cancel the contract and get our money back?

Click for Answer...

Q

I'm about to pay off my co-op loan. What evidence will I have from the bank that the loan has actually been paid off?

Click for Answer...

Q

I am considering an apartment in a new construction condominium. There is park under development by New York City that will greatly enhance the value of the condominium when it’s completed. Although the sponsor’s salesperson indicated that the first phase of the park will be completed in the next year or so, the Offering Plan contains a “Special Risk” that states that the sponsor gives no assurance as to when, if ever, the park will be completed. Who and what should I believe?

Click for Answer...

Q

We are in negotiations to purchase a co-op apartment on the Upper East Side. Our lawyer reviewed the minutes and discovered that the building has a bedbug infestation. Should we go forward with our purchase?

Click for Answer...

Q

My purchase application was approved by the co-op Board, but it is conditioned upon my providing a maintenance deposit and guaranty by my parents. Do I have to comply with the conditions?

Click for Answer...

Q

At my closing, I had to reimburse the Seller for his New York State “STAR” rebate that appeared on the maintenance statement for the month following the Closing. What exactly is the STAR rebate and will I be able to obtain the rebate as well?

Click for Answer...

Q

I'm selling my co-op next month and my attorney aked me to "freeze" the line of credit I have with my bank. What exactly do I have to do?

Click for Answer...

Q

I just found out that the seller will be unable to close for an additional two weeks. As a result, I will have to extend my rate lock, at a cost of $1,200.00. Is the seller obligated to reimburse this cost?

Click for Answer...

Q

I am buying a new construction condo and the Offering Plan is over 400 pages. Do I need to read the entire Offering Plan?

Click for Answer...

Q

We ran across a co-op that has a few “sponsor owned” apartments for sale. Is there any advantage in buying one of the remaining sponsor apartments?

Click for Answer...

Q

I am about to make an offer on an apartment, but I have not been provided with the current financial statements for the co-op. Am I entitled to review the financials before I make my offer?

Click for Answer...

Q

We are selling our apartment to our neighbor, but our neighbor can’t afford to purchase our apartment unless she sells her apartment. Her lawyer wants the contract to provide that the purchase of our apartment is contingent upon the sale of her apartment. Our lawyer is advising us against including a provision that makes the transaction contingent on the sale of the buyer’s apartment. Should we go along with the contingency?

Click for Answer...

Q

We are selling our co-op and the buyer is not obtaining a mortgage in connection with the purchase. The contract required the Board package to be submitted within 10 business days after the fully-executed contract was returned to the buyer. The buyer is two weeks late in submitting the package. Is the buyer in default?

Click for Answer...

Q

I’m selling my condo and I have not been able to pay my common charges for the past six months (I lost my job). I have a buyer for the apartment, but the Board of Managers will not release the Waiver of the Right of First Refusal, unless I pay the outstanding balance of the common charges. I’m between a rock and a hard place, as I don’t have the money. What should I do?

Click for Answer...

Q

I am combining two adjacent apartments that I own and I want the co-op to issue one stock certificate for both apartments. There is an outstanding UCC lien against one of the apartments. The other apartment is owned free of any liens. Can the co-op object to the combination?

Click for Answer...

Q

My attorney asked me to contact the managing agent to verify the maintenance and assessment information that's disclosed in the contract for the apartment I intend to purchase. Isn't that my attorney's job?

Click for Answer...

Q

Our application to purchase a co-op was turned down by the Board without an interview. Although our attorney asked the managing agent to disclose the reasons for the Board’s decision, none were given. Can the Board just turn our application down without any explanation?

Click for Answer...

Q

My bank issued a loan commitment, but then withdrew its underwriting because private mortgage insurance was not available. Will I have a problem canceling the contract and getting my deposit back?

Click for Answer...

Q

The seller has a storage bin, but the contract indicates that the apartment does not come with a storage bin. If I buy the apartment, can I be sure that a storage bin be avaialable?

Click for Answer...

Q

I’ve been asked to serve on the Board of my co-op. Could I be held liable if the co-op is a party to a law suit?

Click for Answer...

Q

I am buying a co-op in Manhattan. The managing agent is located in Brooklyn and refuses to send a closing representative to the attorney’s office for the buyer or seller located in Manhattan. Will everyone have to go to Brooklyn for the closing?

Click for Answer...

Q

We are purchasing a condo that was occupied by a tenant at the time the contract was executed. We just did the walk through and there is damage to a portion of the floor that was hidden by the tenant’s furniture. Are we entitled to a repair credit at Closing?

Click for Answer...

Q

A loan commitment was issued, but the bank requested an explanation for a $14.00 missed credit card payment that occurred nine years ago. Could the bank withdraw its commitment as a result of this missed payment?

Click for Answer...

Q

I'm selling my co-op, which I own with my mother and father. Is it okay to have the closing checks made out to the three of us?

Click for Answer...

Q

A leaking pipe inside the wall of my co-op was recently replaced. The following month, my maintenance account was charged $1,000.00 on the theory that the pipe only serviced my apartment. Am I responsible for this repair?

Click for Answer...

Q

A condo buyer has a mortgage contingency, but the closing will not take place for six months as the seller has a tenant in the apartment. When should the purchaser apply for financing?

Click for Answer...

Q

We submitted our Board package a month ago, but the Board has not scheduled an interview or asked for any additional information. To make matters worse, the managing agent won’t give us any indication as to what’s going on. Is there anything we can do?

Click for Answer...

Q

My co-op contract included the seller’s flat screen, but the bank underwriter required that it be removed from the contract as it was “impacting” loan to value. Can the bank do that?

Click for Answer...

Q

I am buying an apartment in a small co-op that is self managed. How does the bank obtain the required “co-op questionnaire” in order to complete its underwriting?

Click for Answer...

Contact Ron Gitter

Buying or Selling? Email me at