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.