REAL ESTATE
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n part one of our series headlined “Dig Deep” (July 2016), we explored in detail the financial intricacies of purchasing a condo in a new development. However, in addition to the financial considerations, there are important legal and construction aspects that need to be fully evaluated. Every condominium building is governed by an Offering Plan, which is basically a prospectus outlining the legal rights and responsibilities of the developer and prospective purchasers, financial statements and budgets, and technical paperwork (including floor plans and apartment finishes). This document is several hundred pages long and should be checked out by an attorney with specialized knowledge of new condo construction. When a prospective purchaser is faced with an Offering Plan there are key features they should be on the lookout for.
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ESTIMATED CLOSING COSTS
The Offering Plan outlines, in detail, the amount of transfer taxes, working capital contribution, and proportionate share of amenity fees payable by the purchaser at closing. These numbers can reach tens of thousands of dollars, so it’s important to get a firm understanding of these fees at the outset.
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LOT LINE WINDOWS
This is a window in an apartment that abuts or is adjacent to another building. According to the Building Code, these windows may need to be protected by special fire-safe glass. Oftentimes this may not present an issue for apartment owners; however, if an adjacent building is within a certain distance from your apartment, you could be required to seal up the affected windows. As you can imagine, this could be a costly project, not to mention resulting in a loss in value, light and air! No doubt you’ve seen older buildings with bricked-up rectangles that appear to have been windows in a previous life. Those were lot line windows. So to find out if your apartment is affected, you should carefully review the special risks section and floor plans.
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LOCATION OF MECHANICAL EQUIPMENT
When buying an apartment on “spec” it’s important to gain an understanding of
Opposite: One of artist Gwyneth Leech’s works based on her observation of the construction in and around Hell’s Kitchen. Her studio will be open as part of the Garment District Arts Festival, October 20 & 22, 315 W39th Street #1306 (www. gwynethleech.com)
where the mechanical equipment will be placed in the building. This is especially true when you’re buying a penthouse or an apartment adjacent to a roof. Living close to air-conditioning equipment and/or exhaust fans could leave you suffering loud noise and vibrations you hadn’t bargained for.
apartment, give some thought to how long you want to be there.
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CLOSING DATE
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APARTMENT FINISHES
When you buy an a completed apartment, the finishes and appliances are clear to see. However, with new condo developments, you don’t have this benefit. While some may have a sample apartment to view, you should pay special attention to the Offering Plan description to ensure you’re getting what you were promised. It should specify the location of light fixtures, and the brand and color of appliances and fixtures. If these details aren’t there, make sure they’re detailed in the Purchase Agreement. If you want to make substitutions or changes, speak with the developer during the negotiation phase, before any contract has been signed.
You won’t be able to control when the closing takes place or how long your deposit will be tied up. Contracts drafted by the developer’s attorney are very favorable to the developer and often give the sponsor unlimited leeway on when they’re required to close. Unlike in typical resale transactions, where an “on or about” closing date is stated, a developer/sponsor contract typically never identifies a closing date and merely states the developer must give the purchaser 30 days’ notice. To make matters worse, these contracts typically allow the developer to delay the closing for years without penalty. As you can imagine, this can cause major financial problems for a purchaser and could leave you in limbo for years. With this in mind, it’s imperative you negotiate the contract to provide a certain date by which you can terminate the contract and go elsewhere.
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ALTERATION RESTRICTIONS
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REPUTATION OF THE DEVELOPER
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TAX EXEMPTIONS
Most co-op and condo buildings in New York City restrict the type of alterations you can do to your apartment. However, new condos may specifically limit you from doing any construction at all for a set period of time following closing (i.e. no alterations until the developer has obtained the final certificate of occupancy). So make sure you speak with the developer at the outset about any changes you may want to make. During the negotiation phase, you may be able to request that the developer change the location of walls and fixtures, for instance. This would mean you wouldn’t need to do any postclosing construction.
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RESALE RESTRICTIONS
A developer is in the business of selling apartments and typically wants to sell out a building as quickly as possible. Accordingly, they don’t want to compete with existing apartment owners in the marketplace. So the Offering Plan may ban an apartment owner from reselling his or her apartment within a certain period of time (often one to two years). This restriction often carries with it a fine for those who break that ban. Therefore, before buying a new condo
DIGITAL EDITION
It almost goes without saying (but I’ll say it anyway) that it’s important to know you’re buying from a reputable developer with a solid track record of completing successful developments on time. This is a major investment with a lot of risk and uncertainty. A booming real estate market has meant many new developers have entered the marketplace, not all of whom have the experience necessary to complete a successful project. So find out who your developer is and what projects he or she has completed in the past. Some new developments are subject to tax exemptions which could last for ten years or more. This often makes new development attractive for prospective buyers for obvious reasons. Find out if your building is eligible for such exemptions and, if it is, for how long. Information about real estate tax exemptions can be found in the Offering Plan and also on the New York City Department of Finance website. Matthew Lehrer is an attorney NYC specializing in real estate transactions. Contact him at Matt@Gitterlaw.com; (212) 826-1948
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