WHAT DID I GET MYSELF INTO… THEY ACCEPTED MY OFFER ON THAT NYC COOP – NOW WHAT?
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They accepted my offer on a co-op in NYC, now what do I do?
Relying upon your broker, StreetEasy, social media, friends and family, you have been searching for months for the perfect apartment. You have pressed a hundred elevator buttons, climbed up mountains of steps and your health app has measured miles of walking (and sometimes running) to open houses and off and on market listings.
And finally, there it is. You have the zen moment that this one bedroom apartment with magnificent views in an elevator cooperative apartment building is the one you must have.
You have your broker make the offer and it is accepted.
Now what should you do?
The prudent purchaser takes a deep breath, slowly exhales and then decides to hire the right attorney. Why?
The failure to obtain experienced legal counsel to take the time to talk to you about what you are getting into when purchasing a cooperative apartment, to perform the proper due diligence and then to negotiate the contract of sale, may result in nightmarish problems. While it is important to have legal counsel for the many issues to be discussed and addressed once the contract is signed, this article will discuss the critical issues before a binding contract is executed.
It is imperative that before the attorney due diligence, you perform your own.
You have probably visited the building a few times during the day for a limited period of time. Spend more time at the building on a weekday and weekend in the early morning and evening hours. Get a sense of who your neighbors may be. Also walk the neighborhood.
Does it seem that your treasured view may soon be blocked by a building about to be built just a few blocks away? While views are never guaranteed, you may want to know that in a few months of you moving in the view will be gone.
Are your apartment windows facing a highly trafficked block by car or MTA bus? Do they face the building’s garbage pickup area which tends to be noisy? Where is your apartment located in relation to the elevator shaft, garbage disposal room, and common area amenity spaces? Each of these raise potential issues.
It is also important for your attorney to review the minutes of the Cooperative Board’s monthly meetings
..and those for the annual shareholder meetings for two to three years. While these minutes are often sanitized, they do contain meaningful data that can have a real impact on your life if you ultimately close on the apartment.
For example, have there been issues with any of your would-be neighbors (adjacent, above or below) such as leaks, noise, insects, rodents, bed bugs, cigarette smoke to name a few. Are there building wide issues that although the building has not yet assessed the cost to the shareholders, are being contemplated that could force you to pay thousands of dollars in the near future? Do you plan on getting a pet? Thinking about performing alterations or possibly have a need to sublet because of a personal matter or change in employment?
Every cooperative corporation has not only different requirements, but also differ on how those requirements are enforced and applied.
Oftentimes the minutes will give an indication of how difficult or easy an alteration or sublet request will be to get processed and approved by the Board. A careful review of the By-laws, House Rules, Offering Plan and amendments must be performed diligently by counsel.
The past few years of audited financial statements of the Cooperative Corporation must also be reviewed.
You will want to make sure the Cooperative Corporation is on strong financial footing.
For example, is the building’s mortgage set to expire shortly or have its interest rate reset? Given the current rising interest rate environment, higher loan costs may well be passed on to all shareholders by an increase in monthly maintenance charges. Does the Cooperative Corporation own the land and building or does it have a long term net lease with the fee owner? When does the proprietary lease with the Cooperative Corporation expire? These issues may also have an impact on monthly maintenance charges. How well a building has been run can also be examined by reviewing the history of maintenance increases, the tax deductibility of the maintenance, financing restrictions, litigation history and flip taxes. These are just some of the areas you and your attorney should discuss.
While the Clash’s song “Should I Stay or Should I Go” was written in 1981 about relationships, the question posed is one that every purchaser must be willing to consider, in consultation with counsel after the due diligence period, even though the apartment appeared to be the perfect end to a long journey. Sometimes the best long term decision is the short term decision to walk away or at the very least be prepared for what you are getting into.
The cost of experienced legal counsel for this due diligence period is a worthwhile investment.
Not only will it enable you to make your decision with “eyes wide open”, but the cost and aggravation you could be forced to endure in the years to come will far exceed that cost. This is especially true since the future marketability of the apartment, potential for appreciation, your quality of life while living there and your flexible use of the apartment for however long you choose to own it will be based upon the advice and consultation with your attorney.
Should something be uncovered during the diligence period, all is not necessarily lost.
Depending upon the nature and extent of what is uncovered and your tolerance for the issues raised, you may decide that you still want to go forward with the purchase. What you uncover can be used to renegotiate the purchase price. Of course, while the seller may reconsider the offered price based upon the diligence discovery, the seller’s reaction and response will be effected by what you uncover, the state of the real estate market and interest rate environment, how long the apartment has been on the market, whether the seller already has a place to relocate to and whether there were other competing bidders.
As you press those elevator buttons, climb those stairs, and log miles searching for your next apartment, keep your eyes wide open and be ready to contact your attorney when you find that perfect apartment.
As a team, you and your attorney will make sure that this investment decision is wisely made.
Georges Benoliel
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
