By LISA PREVOST
Published: October 3, 2013
In New York, buyers intent on getting a co-op know to brace themselves for the notoriously invasive approval process. But increasingly, condominium buyers are also being asked to fill out lengthy applications and provide detailed financial information to buildings’ governing boards.
In allowing the condo to be sold to an outside buyer, the board issues a waiver of its right of refusal. Before doing so, however, it may at this point in the process demand information about the buyer, including financial statements, employment history, personal references and other details.
In reality, although it is intended to give condo associations some control over who lives in their building, the right of first refusal is very rarely exercised, said Patricia Kantor, a real estate lawyer in Manhattan. Most condo associations don’t have the money to buy an apartment quickly. And bylaws typically require that such a purchase be approved by a majority of unit owners, which can be time-consuming. “There’s a very limited time for the board to act in response to an offer — 15 to 30 days, 45 at the most,” Ms. Kantor said.
What’s more, many condo bylaws limit a board’s ability to get financing, or may require a unit owner vote to do so, said Adam Leitman Bailey, a lawyer who represents condos in New York. Though he has helped condos obtain loans, financing is difficult because usually the only collateral for a loan is the common charge, he said.
Still, even condos without the means to act on a right of refusal may use their waiver-granting power as leverage. “The right of first refusal is being used more frequently and aggressively than ever before in order to give the boards the ability to have more control over who is living in the building,” said Stuart M. Saft, a lawyer whose firm represents about 50 condos in Manhattan.
Mr. Saft says he has used the process to require buyers with “shaky” finances either to find a guarantor or put several months’ common charges in escrow.
Mr. Bailey says he wields the right of refusal “as a weapon” to ward off potentially troublesome buyers. “If they don’t want to provide the tax returns and fill out the questionnaires and give the references,” he said, “then they’re not getting the waiver of right of first refusal. I need to protect the building before they enter it.”
Mr. Bailey says he has also started asking buyers to sign riders in which they agree to terms that may not be in the condo bylaws, like smoking or pet prohibitions.
He has no problem holding up a waiver if a buyer refuses to comply. Could a buyer sue him for damages as a result of a lost interest rate? Possibly, Mr. Bailey says, but the process would be so lengthy that it would hardly be worth it. “It’s very rare that we get pushback,” he said.
In the rare instances when condos do buy apartments, it’s often because “the apartment is just being dumped and the sale price is going to have an adverse impact on the comps,” Mr. Saft said, referring to comparable sales. “This frequently happens in estate sales, when the family and the executor don’t want to waste a lot of time fighting, so they just take the first offer that comes along.”
Or the board may simply not like the buyer. Mr. Saft recalls one instance, in a building with two units per floor, in which an owner objected to an applicant for the unit next to his, because he feared the person would be too noisy. The owner asked the board to exercise its right, which it did, and he bought the apartment himself.