Evaluating the Coop Before You Buy – Part 1/2
Updated kitchen, lots of light, close to subway. Perfect! Let’s buy it. And the maintenance is so low, what could be better?
Turns out, a lot.
How about a multi-million dollar litigation against the coop for which there is no insurance that could bankrupt the corporation if the plaintiff prevails? Let’s run through the basics of how to evaluate the financial health of a coop before buying.
Board minute review: Coops are corporations and like any corporation they are run by a board of directors elected by the shareholders. The board meets on a regularly basis, usually monthly, to discuss things like the management of the coop, financial matters, and approval of new shareholders. Typically minutes are kept, and most coops will allow prospective shareholders to read these minutes to get a sense of what is going on in the building. I’m always shocked at how many attorneys who practice real estate “cut corners” by not reading the minutes before a purchaser signs a contract to buy. Good practice is to read at least the last two years of available minutes to understand the issues facing the coop, and how those issues might impact a new shareholder, like a plan to raise capital or renovate the lobby.
Local Law 11: LL11 requires that buildings taller than 6 stories professionally inspect their façade every five years and report the findings to the NYC Department of Buildings. If problems are found, a plan to fix them must be submitted. The inspections alone can be costly, and if there are significant issues the financial impact can be material. Be sure to ask about the timeline for the next LL11 inspection, and the results from the last.
Neighbor disputes: Imagine that your neighbor calls the police every time you turn on your television. Or the aromas from their “spicey” cooking are permeating all the surrounding apartments. Or their dog misses them and barks to shot it. Get the idea? Neighbor disputes can be disastrous, and costly if they end in litigation. Your seller might not be relocating for work, but rather to make their problem yours with a difficult neighbor. Ask management about neighbor issues, and be sure that any discussion of them in the board minutes is followed up on.