CO-OP/CONDO BUYERS

We put in an offer for a condo apartment, and were told we had to go for an interview. I thought that was just for co-ops. What's up?

Although condominiums have fewer tools than do cooperatives in controlling their residents, they do have "the right of first refusal" when it comes to the sale of any unit in the building. This right is very rarely exercised, primarily because most condos lack the funds to buy at today's market rates, but if the board has serious concerns about a potential buyer, it has the right to buy the unit under the same terms to keep that buyer out.

A condo board is well within its rights to request an interview with any potential buyer to meet him or her, to see if he or she fits in well with the community, and to assess whether there are any glaring financial or personality issues.

As a potential buyer, it behooves you to meet your new board to give you the same peace of mind that they are seeking: that you feel comfortable spending a good part of your time in their midst over the coming years.

Because condos have less leverage over defaulting owners than do co-ops, they have good reason to be vigilant about screening incoming owners to be sure they can afford to live there, and that they intend to follow the bylaws, rules, and regulations of the condo. Once you are living in the building, you may decide to join the board yourself and help keep it running smoothly. Standing in a board's shoes, you are likely to agree that interviewing potential new buyers is a wise idea.

Harris Bornstein is CFO at Douglas Elliman  Property Management.

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I'm buying a sixth-floor apartment. There is no doorman, and I was told by the board that I have to go down to the lobby every time someone I don't recognize buzzes. Why?

The buyer may find that, while extreme, the extra security is warranted. Ultimately, a buyer should be comfortable with a property's level of security before purchasing. As with the purchase of any new home, research is fundamental. The buyer should visit the current managing agent, read the minutes, and review the house rules with a broker and ask questions. An interview with the board of directors is a great opportunity to find out the reasoning behind house rules that may seem extreme or out of the ordinary. By asking why these rules are in place, the buyer will be more informed; for example, "Was there an incident that caused this to be put into place?"

When a buyer who is aware of the house rules purchases an apartment, he or she agrees to obey them, and the co-op board must enforce them. The board implements these regulations because they are governed as a corporation and are subject to its own bylaws. House rules can be amended by a majority vote of the board. Added security measures are common in properties with older residents.

Jackeline Monzon is a partner at Crystal Real Estate Management.

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A couple in Midtown owns a studio apartment in a prewar co-op. They use it as a pied-à-terre, but are considering buying the one-bedroom next door to expand their space. Thanks to an elevator shaft, the two apartments cannot be combined. "This does not trouble us because the apartments are the only two on the floor," the couple tells Ronda Kaysen in this week's Ask Real Estate column in The New York Times. "Since we will not need two kitchens, we would like to remove the kitchen from the one-bedroom, enlarging that unit’s living room, and just use the studio’s kitchen. Do any laws or regulations require an apartment to have a kitchen?" That's a very good question, and one that highlights why potential buyers should check out Co-op/Condo Buyers corner where you can find tips on buying an apartment in the city. In this case, the couple will be getting a lesson not only in the types of renovations that are not allowed because of building codes but also the importance of alteration agreements. Kaysen explains that "the city requires all apartments to have [a kitchen]. So unless you combined the units, the Department of Buildings would never sign off on [the couple's] plan." It's also a matter of perspective. When we buy an apartment it's very easy to think, well, it's mine and I want to make this change. Why shouldn't I be able to? But when you purchase into a co-op, it's not just about your home, but also about the entire building's well-being. Kaysen points out that such a "modification would diminish the value of the apartment, so if you were to foreclose, the building would be left trying to sell an apartment that might be worth less than in its current form…. But remember, whatever you do, one day you may want to sell that apartment and you would be hard-pressed to find a buyer who does not want a kitchen." 

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We're in the middle of the purchase process and just learned about an upcoming assessment. We're concerned that the board doesn't know what it's doing.

In co-op and condo circles, "assessment" has long been considered a dirty word. But, in reality, it is the cleanest way to fund a project. For the most part, an assessment has a clear start and end date. The funds are meant for a specific project and based on a specific budget. As a shareholder or unit-owner, you know what you are paying for and how long you have to pay for it. There is comfort in knowing and being able to plan for a finite end date to both the project and the cost.

The alternative methods of raising the funds are through common charge contributions or borrowing. While I'm a big proponent of building a reserve fund through common charge contributions, I feel this is a long-term solution in capital planning. The danger in longer-term solutions is that the people making the decision – the board members – aren't always there for the duration. Boards change and, when that happens, so do strategies and agendas. With any long-term planning, you have to hope that board members and their successors have the same fiduciary discipline and similar financial goals.

Assessments are clear in what they are meant to address, leaving little room for misunderstanding and misinterpretation.

A.J. Rexhepi is director of operations & development at Century Management.

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Temperatures have been hitting sweltering highs. Now's a good time to review some guidelines on proper air-conditioner installation — especially if you have new shareholders moving in. Here are some recommendations regarding window-mounted air-conditioning units. Having established rules and guidelines in place will go a long way toward helping prevent accidents — not to mention ensuring a safe Local Law 11 status for the building. And check out this primer on installing ductless air-conditioning units from our Ask the Engineers series. Stephen A. Varone, AIA, & Peter E. Varsalona, PE, both principals in RAND Engineering & Architecture, break down everything from roof installation to proper maintenance. Stay cool this summer, and do it smartly and safely. 

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No sooner does foundation work get underway at 25-19 43rd Avenue, in Long Island City, for a new nine-story, 86-unit condo building than New York YIMBY announces two new condo buildings heading to 51st Avenue. Condos do seem to proliferate like bunny rabbits, don't they? According to New York YIMBY, property owner Shahram Nassi filed applications for two five-story, three-unit residential buildings at the vacant lots of 5-18–5-20 51st Avenue, in Hunts Point, Long Island City. It speculates that the units will probably be condos since the buildings will measure nearly 5,000 square feet, with each unit averaging 1,665 square feet. "One duplex unit will share the first floor with the lobby and then take up the entire second floor. Another will occupy the third floor, and the last duplex will span the fourth and fifth floors." No word yet on ticket price, but while we don't expect them to be exactly cheap, they are sure to be a bargain compared to the condos for sale on Billionaires' Row.

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A new shareholder should be concerned about an open lawsuit because the outcome may pose a financial burden on the building. Not all lawsuits are covered by insurance policies and, therefore, the cost of litigation and a possible negative outcome could wipe out reserves or require a special assessment. As a new shareholder, you are now faced with funding these costs in addition to your regular monthly maintenance and mortgage payment. I suggest a shareholder get a legal opinion from his or her attorney as to the likelihood of a negative outcome, or get an opinion from the attorney representing the building.

Buildings face lawsuits all the time for trips and falls, interior damages, etc., but they are often covered by the building's insurance. Lawsuits for claims of discrimination, sexual harassment, human rights violations, mold, asbestos, or fraud are usually not covered under these policies. That's when the effect could be significant.

Pamela DeLorme is president of Delkap Management.

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New York's landscape and skyline may be changing at a bewildering pace, but one thing that has remained fairly constant is the way New Yorkers react when something ticks them off. They may be bookish types and they may have known that their protests would not stop Hudson Companies from buying the Brooklyn Heights Library — but they still showed up to watch Community Board 2 approve the library's sale this week. According to DNAinfo, "the general board conditionally OK’d the proposed $52 million sale of the city-owned property at 280 Cadman Plaza West to Hudson Companies in a motion that passed with 25 members in favor, 14 opposed and four abstentions. The private developer in partnership with Marvel Architects seeks to demolish the existing structure and redevelop it into a 36-story tower with a 21,500 square-foot library to replace the old one and 139 condo units on top." Detractors of the project have many concerns, one of them being that the new library space was to be smaller than the existing space. But the sale was approved with conditions, reports DNAinfo, and one of them is that the new branch will have the same usable floor space as the existing branch. While that seems like good news for the existing library, which is reportedly falling apart and in serious need of renovation, opponents are dismayed to see public spaces funded with private developers who are fattening up their wallets by building luxury condos. Not surprisingly, "opponents of the sale heckled, protested, and repeatedly interrupted community board members as they spoke." New Yorkers don't go down without a fight. And at least the city still has that going for it.

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Falling behind on collecting arrears is a big problem with smaller buildings, especially co-ops. Larger buildings have many shareholders and they can survive if a few people don't pay. I see this in the large new condominiums in which the foreign investors often don't pay their common charges.  

In smaller buildings, there are only a few owners. If one or two of them do not pay, the other owners have to pay double. In essence, the owners who pay are punished for the malfeasance of those who don't; they have to pay their own common charges and put in money through assessments or increased monthly charges to make up the budget shortfall.

These buildings have mortgages to pay. If they don't have sufficient funds to cover their mortgages, they could default and the lender could foreclose. We saw this in the early 1990s when the bigger buildings got into trouble because sponsors with unsold apartments and rent-stabilized or rent-controlled apartments could not afford to make the monthly maintenance payments. In sum, boards are advised to aggressively pursue arrears. Although the legal costs may be significant, you have to get owners to pay. Banks will not lend to buildings or unit-purchasers if there are significant arrears in maintenance or common charge payments.

Martin S. Kera is president of Bren Management

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A pair of siblings got a tough lesson in caveat emptor and the dog-eat-dog world of New York City real estate. Ten months ago, they bought a co-op and — despite having hired an attorney from a firm recommended by their broker — things haven't turned out quite how they imagined. "We’ve discovered several issues that we think he should have caught," they tell Brickunderground in this week's Ask An Expert. "Not long before we bought the apartment, the board had such serious disputes over elections that it did not meet or function for a while; the building’s roof needs substantial repairs (and did for at least a year before we purchased); and about six months before we purchased, a board member was removed for violating her fiduciary duty." Yikes. The siblings feel their lawyer should have discovered these types of issues and want to know whether they can get some of their money back. And it looks like it's going to be tough. Brickunderground says, "It's possible that your attorney did overlook key information and that you have grounds for a claim — and some reimbursement — here, but it'll be tough to turn up concrete proof, say our experts." The problem is figuring out whether the attorney ignored the information or whether it was simply not available in the paperwork he or she would have reviewed. "In representing a purchaser of a cooperative apartment, an attorney should review the cooperative offering plan, amendments thereto, at least two years of financial statements, as well as the board minutes going back at least three years," Brickunderground quotes Jeffrey S. Reich, a real estate attorney with Schwartz, Sladkus, Reich, Greenberg, Atlas LLP. "However, even performing proper due diligence may not have turned the writer’s attorney on to the stated issues unless they were disclosed in the board minutes, a footnote to the financial statements or an amendment to the cooperative offering plan." Even then, however, it "might be tough to quantify the difference between what you paid for the apartment, and what you would have paid had the building's problems been disclosed." There may be no recourse in this case, which may seem unfair, but that's how New York City rolls.

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