Negotiating a Price When a Board Buys a Resident's Apartment to Flip
Sept. 12, 2013 — Many buildings end up in possession of a vacant unit when a rental occupant moves out. With rent-controlled or rent-stabilized apartments, this often happens only when the tenant dies. However, if conditions are right, the building could negotiate with a willing occupant to leave under sunnier conditions, leaving a cooperative or a condominium association with an apartment it can then sell. But those negotiations can be tricky. Rental regulations provide strong protections to a rent-controlled or rent-stabilized tenant, who will often want a sizable severance price, especially if the apartment is in a desirable neighborhood.
Before cutting a deal, first consider the tenant's particular protections. Is his income so high that he might lose his rent-protected status? Is the rent-stabilized unit close to the $2,500 a month threshold and likely to soon become market rate? These issues could provide the building with leverage when negotiating.
Or Sometimes You Don't
At the same time, the board and building management should carefully assess the value of the unit. In some cases, it won't earn you enough to be worth the trouble. If it's a "classic seven" on the Upper West Side, with a 45-year-old tenant who's paying $1,200 a month, negotiating a buyout package may be a good idea. However, if it is a ground-floor studio in Queens, the rental income might be low.
"What's it worth to pay these people to leave?" says Steve Wagner, a co-op and condo attorney and partner with Porzio, Bromberg & Newman. "That is an analysis that the board will have to do in order to decide if it's worth their while."
At the 33-unit co-op at 152 West 58th Street,a rent-controlled tenant the tenant approached the board in 2011. At the time, the housing market was still soft and board members worried they might not be able to sell the unit for a good price. Their reserves were low and they didn't feel comfortable taking out a loan. They offered her a small sum, and she demurred. Nine months later, when a similar unit sold for close to $1 million, they circled back to the tenant and agreed on a price that made everyone happy. In all, it cost the building $325,000 to settle and renovate the property for sale.
The building is currently under contract with a buyer for $950,000 for the two-bedroom apartment.
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