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28 Aug 2014
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CONDO AND COOP RULES OF THUMB: THE GOVERNING DOCUMENTS

Congratulations!  You have taken the plunge and bought into a coop or a condo building.  The next question is, what documents govern your rights and actions as well as those of your fellow shareholders or unit owners?  Coops and condos each have two main governing documents.  For a coop, they are the by-laws and the proprietary lease between the corporation and each shareholder, and for a condo, they are the condominium declaration and by-laws.  Additionally, both coops and condos have rules and regulations, occasionally referred to as house rules that govern the quality of everyday life in the building.

The coop proprietary lease creates a landlord-tenant relationship between the coop and its shareholders, as they do not own the real property they occupy.  The proprietary lease also governs maintenance and repair obligations, along with the rules of tenancy, including permitted uses, subletting, alterations and transfers.  Every shareholder in a coop gets the same proprietary lease.  Where the proprietary lease governs shareholder behavior, the by-laws cover issues of corporate governance:  elections and meetings of the shareholders and board of directors and the scope of the board’s powers.  By-laws typically also cover issues relating to shares, apartment sales and transfers, and building improvements and repairs.

For a condominium, by-laws serve the same function as they do in a coop.  The declaration, similar to a proprietary lease, defines and governs the rights and obligations of the condominium association and the unit owners relating to use of units and the common areas.  The deed to a condominium unit incorporates the declaration by reference.  As a result, when a unit owner takes title to a unit, she also agrees to be bound by the terms of the declaration, which must be filed with the clerk’s office of the county in which the building sits.

21 Aug 2014
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CONDO AND COOP RULES OF THUMB: SPONSORS, ATTORNEYS GENERAL AND OFFERING PLANS (OH MY)

Condos and coops have a language all their own and involve players with whom you may not be familiar.  For instance, a sponsor, the legal entity responsible for developing a new building or converting a building to a condo or a co-op.  Units purchased directly from the sponsor are commonly referred to as “sponsor units.”  When you purchase a sponsor unit, you are the first owner, which in a coop means you bypass the board application and interview process discussed in our last post.  However, it also means that you will likely be on the hook for the seller’s transfer tax, typically 1.5-2% of the purchase price.  Purchasing a sponsor unit in a condo generally means you may get a better deal than you would have if the unit was being resold, but that is counterbalanced by the fact that you could also be paying the seller-sponsor’s transfer tax, closing costs and attorneys’ fees.

Another player in the development and sale of new and newly-converted condo and coop buildings in New York is the Real Estate Finance Bureau of the New York Attorney General.  The Real Estate Finance Bureau reviews offering plans for all condos and coops to ensure compliance with regulations promulgated by the Attorney General, sometimes referred to as the “AG,” as well as the Martin Act, Article 23-A of the New York General Business Law, to which all condo and coop building sales are subject.

During the purchase process you will frequently hear reference to the “offering plan.” The offering plan contains virtually every detail about the building, from the physical aspects of the building and individual units, to whether the building is new construction or a conversion, building materials, architects reports, estimated common charges, initial by-laws, certifications from the architects, sponsors and managing agents and much more.  Essentially, the offering plan governs the sponsor’s obligations as long as the sponsor owns any units in the building.  As long as the sponsor is an owner, any changes to the offering plan – including the by-laws – must be filed with and approved by the Real Estate Finance Bureau.  These documents can be daunting, ranging from 300-500 pages, but should be read carefully. Here is why:  Let’s say that based on your meetings with brokers and visit to the building, you assume that all units, including yours, will be constructed with wood flooring.  If the offering plan states that the sponsor may utilize wood flooring or any type of manufactured flooring, you as the new owner are not guaranteed wood flooring. In fact, you would be legally obligated to accept any manufactured flooring – including linoleum – which the sponsor has installed in your unit.  In that instance, you cannot cry wolf or claim fraud – every new unit owner has to agree to the offering plan in advance and you would have contractually committed yourself to accept any manufactured flooring.  Save yourself the heartache and the over-the-counter pain medication you’ll need from staring at your unsightly floor.  Read the offering plan, and hire a competent real estate attorney to review it as well.  An ounce of prevention is worth a lifetime free of salmon-pink linoleum.

20 Aug 2014
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CONDO AND COOP RULES OF THUMB: THE BASICS

Before purchasing an apartment in a building in New York City, it helps to understand the difference between the two main options:  a condominium and a cooperative building.  The biggest difference between the two lies in what ownership entails.  In a coop, a unit owner owns shares in a corporate entity that owns the building and has a proprietary lease, which gives her the right to occupy a specific unit.  A condo unit owner owns real property – her unit – and has a deed to her apartment.

There are other big differences – viewed sometimes as positives and negatives depending on a buyer’s needs – between a condo and a coop.  For instance, condo owners have considerably more freedom to transfer and sell their apartments than coop owners, who may be restricted to limits on the amount of financing, imposition of flip taxes and the requirement that a prospective owner submit an application, be interviewed and ultimately approved by the coop board of directors.  While condo owners are more easily able to transfer and sell their units, the costs associated with purchasing a coop are quite a bit less than those incurred with buying a condo.  Condo buyers must pay a mortgage recording tax on any financing, purchase title insurance, order a full title search, pay for the lender’s title policy and pay for departmental and other searches associated with real property.  Condo buyers also must pay real estate taxes imposed on the unit and are typically required by the lender to deposit these taxes in escrow.  When it comes to building-wide expenses, however, a condo owner typically pays less than coop owners.  A condo owner pays monthly common charges to cover costs associated with maintaining the common areas, obtaining financing if necessary and hiring a managing agent based on her percentage ownership, but separately pays her own real estate taxes.  A coop owner, on the other hand, pays much higher fees in the form of maintenance charges and occasional special assessments to cover all of the costs and expenses incurred by the corporate entity, including real estate taxes, finance charges and expenses incurred by the coop in connection with general operation of the building, maintenance, renovation, upkeep and any necessary financing.

There are many more discussion points when it comes to whether to buy a condo or a coop, but the bottom line is, your real estate attorney and your broker should be well-versed in these differences and able to help you make a fully-informed decision.  Stay tuned for more, including an overview of the parties involved in the construction, sale and day to day maintenance of condo and coop buildings and how their actions are governed.

 

 

 

 

 

13 Aug 2014
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CONQUERING THE DIVIDE: THE FINAL STEPS

So you have made the decision to proceed with a partition to divide or sell jointly-owned property.  Much like with any other litigation, the question of “how it works” naturally presents itself.

First, you must establish your prima facie entitlement to partition by demonstrating ownership and right to possession, typically by presenting a duly executed deed.  Importantly, you do not have to be residing in or on the property in order to have a right to partition.  Once you have provided the court with the requisite proof, the court typically refers the parties to a referee to determine the ownership interest of each co-owner of the property and, as addressed in our last post, to determine whether the property can be physically divided without great prejudice to the owners.  If such a partition in kind cannot be accomplished, the property is sold at a public, advertised auction.

Do parties always see partition actions through to the sale at auction?  As you can imagine, the combination of the parties’ costs owed to the referee and the loss in sale price almost guaranteed with a public auction can be enough in many instances to force the parties to sit down and come to agreeable terms.  In some cases, perhaps one owner agrees to purchase the other owners’ interests in the property.  In other cases, the parties agree to have a broker sell the property privately and split the sale proceeds accordingly.  Either of these options is far more cost effective than allowing your jointly-owned property to be sold at public auction, but where rights to land and property are concerned, our first reaction can be emotional.  Unfortunately, the nature of the beast dictates that letting emotion rule your decision-making in a partition proceeding will certainly cost you not just grief, but quite a bit of money.

11 Aug 2014
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CONQUERING THE DIVIDE: TO SELL, OR NOT TO SELL?

You have decided that you cannot continue to co-own the house or apartment building or farm that you inherited with your siblings, so you are seeking a partition.  The question is, do you split the property or do you sell it and split the proceeds from the sale?

The law provides for two kinds of partitions:  a partition in kind and a partition by sale.  A partition in kind is a physical division of the property, whereas partition by sale allows property owners to sell the entire property and divide the proceeds.  Whether the partition be in kind or by sale, the division of property or proceeds is based on the individual interests of each owner.  The catch, however, is that New York law only allows partition by sale if it appears that a partition by kind would greatly prejudice the owners.

When would a partition by kind greatly prejudice the owners?  The best example is a single-family home.  Depending on the structure, even the subdivision of a multi-family dwelling could be too prejudicial for a court to countenance.  Conversely, if you and your co-owners own an undeveloped plot of land, odds are it can be subdivided without great prejudice to anyone.  Be careful, though, and check your local zoning restrictions.  If your plot of land is subject to zoning restrictions and cannot be subdivided, you may only be able to partition by sale.

07 Aug 2014
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CONQUERING THE DIVIDE: FORCING THE SALE OF CO-OWNED PROPERTY

Maybe you and several colleagues purchased property decades ago as part of a business venture that has since crumbled? Or you purchased an apartment building with family members to serve as a joint investment, but relations have become strained?  Or a relative passed away, leaving property to you and your siblings?  Perhaps you and a significant other purchased a home together, but are now splitting up?  Regardless of how you came upon your co-owned property, you may need to take action when the relationship deteriorates and one or more of the co-owners needs to undo the deal.  It is often not feasible to continue the status quo, yet there is often no agreement as to how to dispose of the property.  How can you rid yourself of this unwanted property when your co-owners refuse to sell or buy you out?

The law provides an option:  partition and/or sale.  In New York, a person holding and in possession of real property as joint tenant or tenant in common, in which she has an estate of inheritance, or for life, or for years, may maintain an action for the partition of the property.  This can mean one of two things, depending on the type of property.  If the property can be divided, (i.e., a plot of land) and split between the owners it will.  If not, the court will order a sale, with the co-owners splitting the proceeds (i.e., a single family home).  The remedy, contained in New York Real Property Actions and Proceedings Law, Article 9, is available to any one of the co-owners of real estate, and while it is not an absolute right, upon application to a court it is invariably granted as it would not be equitable to require an owner to forego receiving the value of her share of real property until her co-owners are ready to sell.  Partition and sale actions also allow parties to obtain an accounting regarding the value of the property and each other’s interest.

While this point of law makes it easy to determine who has the right to seek partition and sale, where land and rights to land are concerned, things can get complicated.  How do you determine whether to divide or sell the property?  Does it matter whether one person has lived in the residence and the other has not?  What is the process once a court orders a partition and sale?  Stay tuned for more information.

 

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