Co-op purchase contracts are a popular option for those looking to buy property in New York City. In this type of arrangement, multiple buyers come together to purchase a building or apartment complex, and each buyer owns a share of the property. This method of purchasing real estate offers many advantages, including shared responsibility for maintenance and upkeep, reduced costs through economies of scale, and the opportunity to live in a desirable location at a more affordable price. However, there are also some unique considerations and potential challenges that buyers should be aware of before entering into a co-op purchase contract in New York. This Eastcoastlaws.com article will explore the ins and outs of co-op purchase contracts, including the benefits and potential drawbacks, legal requirements, and key factors to consider when evaluating a co-op opportunity in the New York real estate market.
What Your Co-Op Contract Might Say About Co-op Board Approval
The owner-board corporation of directors must likely give its permission before you may purchase a co-op apartment. As a result, the co-op contract will outline the actions you need to do to get the co-op board’s approval as well as any timeframes for doing so, as a backup plan before the deal may close.
The standard form contract for New York co-ops, for instance, mandates that buyers submit an application on a form provided by the board and pay any application fees levied by the board. The buyer is often required to provide comprehensive financial documentation with their application, such as pay stubs, bank statements, and income tax returns, as well as personal and professional references. The board will also request to examine the loan commitment letter that your bank has issued if you are applying for a mortgage.
The number of days you have to submit your application and the circumstance that will cause those days to expire is typically specified in co-op contracts. In New York, you normally have three business days from receiving a loan commitment letter and ten business days from delivery of the completely completed contract if you are seeking a mortgage. Your co-op contract probably calls for you to participate in an interview with the board as part of the application process. The board’s decision about your application won’t likely be made until its subsequent monthly board meeting. Thus, if the board has not made a decision by the scheduled closing date, your co-op contract ought to permit the closing to be delayed.
The closing may be postponed by 30 days according to the typical New York co-op contract. Because time is of the essence in co-op sales in New York, this permission to delay the closing is expressed expressly. This means that in New York if the board has not made a decision after one 30-day postponement, either side may cancel the contract. Also, your contract should state that you will receive any down payment or deposit you paid if the board rejects your application.
What Your Co-Op Contract Might Say About Your Right to See Corporate Documents
The majority of co-op agreements have language saying that you reviewed the corporation’s records before signing the agreement or that you relinquished your right to do so. The offering plan, the certificate of incorporation, the bylaws, the proprietary lease, the house rules, the minutes of the meetings of the shareholders and directors, the most recent audited financial statements, and the most recent statement of tax deductions available to the shareholders of the corporation are examples of such documents. Never give up this right! Before you sign the contract, your lawyer should carefully analyze these documents to evaluate the corporation’s financial situation and the building’s physical condition.
For instance, these documents can indicate that the company plans to make significant capital renovations, such as repairing an elevator or painting a brick façade, which could result in a shareholder assessment if the company doesn’t have enough reserve cash.
These records will also show if the cooperative levies a “flip tax.” A “flip tax,” which the seller pays to the corporation at closing in many co-ops, is imposed. The method used to determine that flip tax is specified in the corporation’s bylaws. It is probable to use one of two methods:
- a percentage of the purchase price
- a percentage of the seller’s profit, or
- a fixed amount per share.
If the corporation for the co-op apartment you are purchasing charges a flip tax, your contract should specify that paying it is the seller’s responsibility.
Co-Op Seller Information About Defects and Renovations In New York
Last but not least, the seller should include a number of assurances in the contract regarding the state of the particular co-op flat you are buying. These assurances should state that there are no leaks or bedbugs in the apartment and that all appliances will be supplied at closing in a functional state.
Consider this a warning sign that there might be an issue if the vendor declines to make one or more of these promises. Continue your research. To determine whether there might be a problem with the unit, your lawyer or broker should question the seller’s lawyer or broker. Before you sign the lease, if you haven’t done so already, contact an expert to inspect the unit. Depending on what you discover, you can choose to abandon the purchase, request a price reduction, or proceed with the deal as scheduled.
Additionally, the co-op seller must guarantee that any substantial improvements made to the apartment were done so in accordance with the law and with the co-op board’s approval. If they weren’t, the board can impose a condition on closing that the seller makes the apartment compliant, which might severely push back your closing date. If you need to finish the purchase soon, you might want to back out.
This Eastcoastlaws.com article outlines a few crucial contract provisions to watch out for if you’re buying a co-op, but it shouldn’t replace legal counsel from a co-op expert.