Another Co-op Board Nightmare: Lease Expiration
Please note that this is me, Christine Toes, writing this post, and not Noah:)
I am representing a seller in a building with a difficult managing agent or a difficult co-op board (it is hard to say which & it could be a combination of the two. Perhaps they aren't being difficult, it might be that they just don't care?). The buyer was approved by the board to purchase the apartment on Thursday, December 20th. Normally, we'd schedule a closing date and be done in about two weeks, perhaps a little bit more due to the holiday season. So we should have closed before January 4th.
The co-ops proprietary lease expires in about 30 years, and her lender (Wells Fargo) will not give her a 30 year loan until the Managing Agent (MA) sends them a letter saying that the board intends to renew the proprietary lease. It is my understanding that every lender is going to require that a co-op's proprietary lease be valid for more than 30 years or they are not going to issue a 30 year mortgage. So this isn't a problem with Wells, it is something any lender would require.
Of course the board is going to renew the proprietary lease! This should be a routine procedure. But the MA says we must wait for the next board meeting in order to address this issue, citing that she doesn't have the authority to write the letter.
Originally the meeting was supposed to be the first week in January, so we figured this issue would just set us back 2 weeks. Then the board cancelled their January meeting and decided to wait until February 6th to meet!
Despite repeated calls to the Managing Agent by the seller, and both the buyer's and seller's attorneys the M.A. says her hands are tied and we have to sit tight until February. The seller also called his neighbor who is on the building's Board of Directors, but hasn't received a response. Meanwhile, the seller is paying for a vacant apartment and the buyer's mortgage rate lock has probably expired. Luckily for her rates have probably gone down since she locked in a rate, but she may face penalties or incur additional fees for extending her rate. And she'd obviously like to move into her apartment!
I am tempted to write a letter to the entire building letting them know what is going on. I don't know if the Board of Directors (except the seller's neighbor) is even aware that this is happening. And I suspect shareholders in the building would not be happy to learn that the MA / Board are unnecessarily holding up a sale for SIX WEEKS!
My seller's attorney (who has done thousands of co-op transactions in Manhattan) tells me that this is preposterous and that he has never seen it happen before.
Toes says:
1. If you are on your building's Board of Directors, find out when your proprietary lease expires and make sure that the Board votes to renew it when it gets down to 30 years prior to its expiration.
2. If you are on your building's Board of Directors, give your Managing Agent a directive to contact you if a problem is holding up a sale in the building.
3. If you are selling your property, talk to your managing agent and ensure that the proprietary lease is not expiring close to 30 years from when you anticipate a closing.
Posted by anonymous
Thu Jan 17th, 2008 12:38 PM
This is just the tip of the iceberg. Most of the large Coops in Ny were formed by huge landlords - their portfolios sometimes extending back several generations. These landlords exploited the Corporate Business Law in such a way that shareholders are virtually helpless when these type of issues come up.
Coop shareholders are the most disenfranchised apartment dwellers in the world. They have all of he responsibilities of property owners yet NONE of the rights. All of the risks of homeownership with almost none of the benefits.
Although there have been some newly proposed legislation in the past few years Coop shareholders essentially have no government or private agency who will enforce their rights.
There needs to be be more legislation proposed that protects the rights of shareholders and their investments. Until Coop apartments are given the same protection as other forms of home ownership you will begin to see more and more crisis situations arise as the Coop boom of the 80s matures and scenarios like the one in your column begin to emerge.
I've already seen several nightmares stemming from UCC filing mishaps which cost people thousands. Not to mention the corrupt relationship between the sponsors and managing agents that they form to protect their interests. Or the perpetual board of directors who sit on boards in perpetuity and were probably planted by the sponsor as well.
The frightening thing for many Coop shareholders is that many injustices will probably go unnoticed for years before our legislators recognize the problem.
I'm sure you're aware of the efforts of Former Judge Samuel Levine who proposed a "bill of rights" for Coop shareholders to the attorney general Andrew Cuomo. Or Council member Hiram Monserrate who is trying to pass a Bill which would require boards to disclose their reasons for rejecting purchasers. Or any of the many legal cases where shareholders have been ousted from their homes and possibly forced into financial ruin such as the David Pullman case.
I appreciate your efforts to keep issues like this in the public eye and I hope you and your peers continue to share these scenarios as they begin to emerge.
Posted by anonymous
Wed Jan 23rd, 2008 12:34 AM
This is just ridiculous. Any responsible board would hold a 2 minute board meeting by telephone, tell their attorney to extend the lease, sign it, fax to the buyer's attorney, and they could close. The problem, as noted by the above commenter, is that boards don't have to act responsibly.
Posted by toes
Wed Jan 23rd, 2008 07:12 PM
Well, luckily, the buyer was able to find a different lender who would waive the proprietary lease letter. So we are going to close next week. But this issue delayed the closing by a month & the buyer wasn't able to use the lender she wanted to use.
Posted by Andrew Kirwin, Esq.
Thu Jan 24th, 2008 12:26 PM
I am an attorney practicing in residential real estate transactions who has worked with Ms. Toes. Strangely enough, I am currently checking into the expiration date of a Proprietary Lease for a contract I am preparing. A proper contract of sale for a Coop Unit should list the expiration date of the Proprietary Lease. When my client purchased the apartment, the lease was set to expire in 2026. We are checking with the managing agent now to determine if the expiration date of the lease has been extended. If the expiration date has not been extended, we can start dealing with the issue now. While I have not read the contract for the deal described above, I suspect that the attorneys left the lease expiration date out of the contract or none of the buyer's representatives noticed the expiration date.
If you have any questions, feel free to contact me at akirwin@attglobal.net