More Pretending to Be a Coop: Confessions of a Condominium
As we turn the corner toward Halloween, a time of year when people dress up and pretend to be someone else, let’s revisit the subject of condominium boards that like to pretend they are coop boards.
Let’s take a minute to review. A coop typically has a right of approval of a purchase transaction. That is, if a shareholder wants to sell, the prospective buyer must complete a full application to the board of directors who have the right to approve or reject the application. The board does so with impunity, so long as they don’t violate applicable fair housing laws and the coop’s by-laws. Condominiums, on the other hand, typically have a right of first refusal of a purchase transaction. Unlike a right of approval, the condominium board has two options if a unit owner wants to sell: (1) exercise its right of first refusal, and buy the condominium on the same terms and conditions the unit owner proposes to sell to a third party, or (2) waive their right of first refusal (by issuing what is commonly referred to as the “waiver”). Condominiums almost never exercise this right of first refusal, and the whole process is generally considered to be superfluous waste of time and money.
Much of what we see these days is nothing more than financial voyeurism by condominium boards. Recently I was representing a purchaser paying cash for a condominium. He is the CEO of a major world brand of liquor, and is worth in excess of $200 million. The condominium was to be a pied a terre for him, and the price was a little over $1million. We asked management if he could submit financials showing his net worth, and bank statements showing in excess of $10million in cash, in lieu of putting together all the brokerage account statements all over the world reflecting his vast securities portfolio. Management declined. This was a building with a little over $300,000 in cash and no line of credit. As such, they had no financial ability to exercise their right of first refusal, but continued to insist that my very wealthy and very busy client spend his time gathering brokerage account statements supporting his wealth. It slowed the process down by two weeks, on an empty apartment whose seller was waiting to buy another.
So I ask: whose interest did this fishing expedition serve?
Recently condominium associations have also begun to try to impose escrow “conditions” on the issuance of the waiver. For example, non-US buyers or entity purchasers, like an LLC or a corporation, are often suspect by the board, who reason that an LLC is merely a “shell” created for the purpose of acquiring the unit, or the non-US purchaser will be hard to track down to get monthly dues from. Condominium boards evaluating the waiver application package of such buyers offer to issue a waiver only if the buyer “funds” and escrow with one or two years of common charges in advance. But unless the condominium by-laws require that entities post common charge escrows – and most do not – then such a request is inappropriate and should be resisted. It will just slow down the deal, and alienate the buyer. Careful brokers and lawyers will immediately push back when confronted with such a request.
And just yesterday I was asked by a managing agent to provide a letter for my buyer from a CPA confirming their “occupation”. I called the managing agent and asked if he wanted to know their religion also. He seemed shocked. Let’s remember that NYC Human Rights Law prohibits discrimination based on lawful source of income. Inquiring about a buyer’s occupation is tantamount to asking them their religion. Neither is appropriate, and both likely violate local law.
Remember, our job as real estate professionals is to propel deals toward closing with the least amount of delay. It serves our clients’ interests to do so, and an easy way to accomplish that is to keep condominium boards under control when it comes to these waiver applications.