New Development Offering Plans & "Special Risks"

(Christine Toes here)

When reviewing a condo offering plan (a huge document that, when accompanied by its amendments, explains basically everything about a building), one of the first sections your attorney will visit is the "Special Risks" section. The good and bad thing about this section is that the developer must disclose every single possible thing that could go wrong in order to make the Attorney General's office (A.G.) happy.

A few things to look for:
1. Chances are only the first $100K of your deposit on the contract for the apartment is FDIC insured.
2. Sponsor retains voting control of the condo board, often until 75%-95% of the building is sold. Sometimes they can waive control of the board prior to that time. After a certain % of the building is sold and the condo board is formed, the sponsor may be able to have more than one vote on the board or appoint more than one representative.
3. As long as the sponsor still owns (for example) 25% of the building (or up to 5 years after the first closing), the board may not be able to make any material changes to the common areas, change employees, enter into contracts for work/services, borrow money on behalf of the condo, or exercise a right of first refusal UNLESS these changes are required by law or the condo's insurer or are approved by the sponsor.
4. Most buildings don't establish a reserve fund for the building (most or all of the building's systems should, in theory, be new) but they do require approx two months common charges to be put into a reserve fund by each buyer at closing.
5. Some buildings require the condo board to buy the super's unit and the costs are rolled into the first year's budget. Others require the buyer to pay for the unit out of pocket, which could be $10K - $25K in extra closing costs! Some buildings rent the super's unit to the condo and at a later date, sell it to the board.
6. Purchasers should be aware that the amenities and the full building staff (doormen, porters, etc) may not be in place in the building after closings begin, sometimes for a year after closings start. The hours and dates for move in may be restricted because of construction.
7. Construction may be noisy and messy while work in the building is being finished.
8. Real estate taxes are estimates (frequently estimated by the sponsor's tax attorney) and may change (New York City can come up with their own numbers).
9. Pay attention to what can go into the commercial space in the building. Sometimes the commercial space may be banks, bars, parking garages, theatres, spas or commercial office space. Usually there is a promise that nothing "obscene or pornographic" such as an "Adult Physical Culture Establishment" (I'm translating this to mean "strip club"?) will be in the common space. Sometimes they also promise that no abortion clinics or family planning establishments or dry cleaners will be in the commercial space. One Gramercy area building neglected to tell buyers that a McDonalds would be going into the commercial space.
10. Sponsors usually reserve the right to rent out unsold apartments and may be able to rent them out as short term furnished rentals.
11. Buyers frequently can not "flip" their units until at least one year after the first closing.
12. Window treatments may need to be white on the window side of the building to promote architectural unity.
13. Check for "lot line" windows and whether you would be required to pay to brick them up should another building go up next door.
14. Check to see how much over budget the sponsor is allowed to go (sometimes by 25%) when it comes to common charges; Always plan for the worst.
15. Check to see how late the sponsor can be on delivering the building (sometimes a year after the closings are projected to begin) before you can pull out of the deal. Toes says: Make sure your landlord is flexible on lease extensions!

Other items to keep an eye on:
Check whether labor mentioned in the budget is union or non-union. If the budget calls for union labor, assume that the common charges will be a bit higher.
What building systems / mechanicals have been updated? No matter whether it is a ground up building or a conversion, find out what warranties are in place on the roof, boilers, elevators, etc. (Note: The appliances in your apartment should be under warranty.)
Frequently, any major repairs needed on terraces that are not the fault of that unit owner are divvied up between ALL unit owners.
You may be charged a fee (example, $150) to clean the interior and exterior of your windows twice a year.
Sometimes after the first few years of being members of a building's "Club" or "Spa" for free, the unit owners will be responsible for paying fees through increased common charges.
Doublecheck how the square footage of the apartment is measured (i.e. are the common elements of the building included in the square footage?)

Toes says: I can't underscore enough how important it is to hire a NYC real estate attorney. You want to hire someone who has seen hundreds (if not thousands) of NYC condo offering plans and knows what to look for. And you want an attorney who knows how to amend the contract / structure the deal so you are protected against whatever issues arise.

• Add to del.icio.us
• Digg this!
• Add to Technorati
• Add to Reddit