With favorable pricing and increased opportunities for negotiability in the current market, now is as good a time as ever to purchase a co-op in New York City. Below are five questions your client may ask before taking the leap, and you should be ready to answer:
What does the board approval process involve?
Every co-op has a different approval process, and you should know what is involved up front. Some boards require all-cash purchases, as well as a large amount of proven savings and earned income, while others are comfortable with less. It may be helpful for your client to know someone in the building who can give them a recommendation. They will also need to pass a board interview before receiving approval, which can include questions about their financial circumstances, along with intended renovation and ultimate use of the apartment.
Who are the co-op board members?
While co-op board members are not paid for their services, and there are no specific qualifications for serving other than being over 18 years old, the board is responsible for a number of essential decisions. They include maintenance fees and additional financial aspects, approval or denial of shareholder requests, as well as oversight of the building’s bylaws. For these reasons, it is important that board members be fiscally responsible and are capable of making prudent decisions that will affect the building at large.
Is there a building ethics policy?
It has become common for co-ops to require a code of conduct for its board members. This can help avoid potential conflicts of interest, such as having someone with a business or family connection to a board member perform work on the building. In fact, there is a recent statute regarding certain board conflicts of interest, and members have a fiduciary duty to uphold this law.
What is the board’s policy regarding access to co-op documents?
Shareholders have the right to review their co-op’s records, and it is important to know that the board understands this right. In 2017, the New York Supreme Court ruled that I had the right to review my co-op’s financial books and records. This request came after I discovered the building had taken on a large façade renovation project that went over budget. Furthermore, the board had not disclosed to shareholders that the contractor was the then-president’s brother-in-law. In 2019, the building received a violation from the New York City Department of Buildings for “failure to maintain building exterior walls/facades.”
In the event of a dispute, what are a co-op owner’s rights under the law?
Be sure to review the building’s bylaws, proprietary lease and state law, and explain them to your client. I would also suggest advising them to look at the building’s corporate documents and rules with a real estate attorney in order to avoid any potential surprises in the future.
In the event of a disagreement over maintenance fees, building rules, changes to the proprietary lease or some other unforeseen circumstance, the co-op owner will be required to file an Article 78. Under this law, the shareholder only has 120 days after a board decision to file a complaint questioning any board decisions. As the 120 days can start before the unit owner has been notified of the board action, they can be past the statute of limitations before even knowing it. At that point, it may be too late to correct any potential wrongdoings by the board, regardless of the strength of their position.
When buyers believe they have found their dream home, they are often hesitant to ask too many questions, for fear that they will lose out on the deal. However, performing due diligence and asking the right questions ahead of time will go a long way toward bringing your client peace of mind, as well as avoiding any potential litigation down the line.
Armand Musey, CFA
425 East 86th Street
New York, New York