Diplomatic Duress

Discrimination? Or diplomatic maneuvering? You be the judge.

When the board members of a Manhatttan Upper East Side condominium received an application for a sublet late last year, the contents set off an unusual round of comment. Not only did the board feel that there was not enough financial information, but it was also concerned about the applicant himself – a diplomat from a North African country who had a historically uneasy relationship with the United States. After several rounds of discussions, the board decided to reject the application.

“We told him it wasn’t complete,” one board member says. But now the board was in a tough spot: the diplomat had resubmitted his application and under the condominium’s bylaws, the board had almost no grounds to reject it again. The board members followed the advice of the building’s attorney: “Keep asking for information, until they go away.”

While several attorneys say that the Upper East Side condo’s actions are illegal because the board members are discriminating against the diplomat based on his country of origin, they admit that boards are right to be cautious when selling or leasing to a diplomat. They have no guarantee that they will be able to hold the applicant liable if something breaks in the apartment and causes damage to other units.

“This is New York. You’ve got lots of people who work for the U.N. or a consulate. You have to be very careful that their job description won’t result in diplomatic immunity,” warns attorney James Samson, a partner in Bangser Klein Rocca & Blum. That being said, he adds: “You can’t discriminate based on someone’s race, color, creed, or country of national origin.”

One way for boards to protect themselves, adds Samson, is to insist that all applicants not only sign a waiver of immunity as a condition for leasing or buying in a condo or co-op but also go further and insist that applicants sign a statement that they will not raise the issue of diplomatic immunity in any proceeding, and that they will agree to submit themselves to the jurisdiction of the courts of New York. Because all a board should actually be looking for is “someone who is going to pay their maintenance [and] be responsible for their actions.”

“My experience when presented with diplomatic immunity has been to urge my clients not to permit a foreigner with immunity to purchase an individual co-op apartment without a sizable security deposit or escrow for at least a year’s worth of maintenance,” says Mark Axinn, an attorney with Brill & Meisel. The reason: in case of a default, “it’s virtually impossible to collect from such individuals in a state court proceedings, so the building will have very limited recourse [unless there is] a large security or escrow deposit.”

While the board members of the Upper East Side condo that rejected the diplomat say they are most concerned about the effect on security in the building, a broker for Coldwell Banker Hunt Kennedy, says the biggest issue with diplomats is the potential lack of privacy for everyone else in the building. Having an active diplomat in a building can be a huge imposition for the other residents, says the broker. “It means having a cop in the lobby interviewing all the guests. It is a tremendous imposition on the building.”

Rejecting applicants because they are associated with the U.N. is fairly common among co-ops, which is why most diplomats live in condos, where there are fewer rules. But even condominiums are tightening up. One attorney says he advised a condominium board not to lease its space to a South American embassy. The reason? Liability. “They were concerned about the ability to use our court system to collect on any judgment or obligation they had,” he explains.

Like Axinn, attorney David Berkey, a partner in Gallet Dreyer & Berkey, urges boards to require a sizable security deposit upfront if the building is going to lease to a diplomat, or else have maintenance in escrow in case the building has a disagreement with the owner. At the same time, Berkey says that boards should be sure to check the building’s mortgage documents before selling or leasing to a diplomat.

“The leasing of space to a person or entity with diplomatic or sovereign immunity can be a violation of the underlying mortgage of the property,” he says. “They should check their documents to be sure they are not in violation.”

A veteran broker maintains it took several tries before she got one client, an ambassador, into a ritzy Chelsea co-op. The board would only sell on the condition that the diplomat agree to have the apartment in her American husband’s name. However, the broker says, the delays and the proposed solution frustrated her client.

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“It was her money, and she didn’t feel like having everything in her husband’s name.” Now the broker gives all her clients the same advice. If they are a foreign national looking to buy or lease in a co-op or condo, “you have to have liquid assets in this country, and a letter from the U.N. [declaring] that you are fully responsible for any [of your] debts.”

But while some may outline potentially dramatic problems in selling to diplomats, others maintain that all it takes to run a smooth application process is to have a set of rules and to stick to them. At 433 East 51st Street, the co-op board handles all diplomatic applications on a “case-by-case basis,” explains the president, Paul Gumbinner. The building only reviews applications from diplomats who submit all the financial information requested and agree to pay their own bills (as opposed to their country being responsible for them). They must also sign a waiver holding them responsible for their actions in the co-op. “After that, we interview them and decide.”