By Daniel Akerman, Listing Specialist with the Queens Home Team at Keller Williams Realty Landmark II.
Many people are familiar with the fact that in New York City many properties that are purchased are in co-ops, and they are aware of the unique powers that a co-op board has in approving or denying a purchase or the purchaser. What many people are not aware of is that condos ALSO have boards, and that a condo can actually prevent a buyer from purchasing or hold up a closing for a seller. In this article, we’re going to dig into what happens when a condo board won’t let you close, how that happens, and what you can do about it.
Quick Overview of the NYC Condo Sale Process
Let’s review the typical sale process of a condo in NYC. Once the condo has been listed, finds a buyer and goes into contract, the process of closing on the condo begins. For the purposes of this example, we’ll assume the buyer is using a loan to purchase, since that is the case in the majority of cases and it involves more steps. The lender will have ordered an appraisal, and worked on approving the buyer for the loan, and the buyer will have completed the purchase application for the condo. This can be broadly similar to a co-op application, though usually a little simpler and less involved. In essence, it will typically be a full financial accounting on the part of the buyer to be reviewed by the board, along with the loan commitment letter. This is then submitted by the buyer or their agent to the management company. The management company will review it, and sometimes they will forward it to the board for their review as well.
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Ways a Condo can prevent a sale in NY
In the vast majority of cases, the approval process for a condo sale is a formality, and it moves forward to closing, as normal, pretty quickly. However, there are ways that a condo can prevent a sale or purchase in NYC. The primary way a condo board can insert themselves into the purchase/sale process is through something called Right Of First Refusal, so let’s go into that a bit further.
Right Of First Refusal in NY Condo Sales
Whereas a co-op can deny a purchaser for any reason (as long as it doesn’t violate fair housing laws) and are not required to disclose their reason, a condo can usually only refuse a sale through exercising something called Right Of First Refusal (with some rare exceptions). What this means is that for any proposed purchase, the board can only prevent the purchase by purchasing the apartment themselves, at the same price and terms as stated in the contract of sale between the seller and buyer. In this scenario, there is very little impact to the seller, because they get their sale at the same price and terms they initially agreed to, but the buyer can be out of luck. As long as the condo board followed the process, and did it legally, then the buyer has very little recourse, and will not be able to purchase the apartment (they will, however, generally get their deposit back). This does happen from time to time, but it is rare.
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In most instances what happens is that the condo board simply issues a “waiver of right of first refusal,” which is simply an indication that they are not going to purchase the apartment and the buyer and seller are free to close the deal.
Here, though, is where things can get a bit sticky. We have seen instances – VERY rarely – where a condo board does not exercise their right of first refusal, but also fails or refuses to issue the waiver letter. Generally speaking, a board doesn’t really have a legal leg to stand on to do this. The condo’s own by-laws will generally state that the waiver must be issued within a certain amount of time, and any failure to do so is essentially a de facto waiver of their right of first refusal. In addition, there are laws or legal concepts against preventing the “disposition” of real property (i.e. a seller’s right to sell their own property), so a board puts themselves in legal jeopardy by doing this type of thing. Even so, it does happen once in a blue moon, and a board failing or refusing to issue the waiver can cause problems for both the buyer and seller. In this very rare occurrence, the buyer and seller can be “stuck.” The title company, hired by the buyer’s attorney, will often have problems with closing on a transaction without that waiver, and so, in order to close, something has to give: either the title company has to agree to do it without the waiver, or pressure has to be put on the board to issue the waiver and adhere to the rules. In either case, it can take extra time and put the deal in jeopardy.
How To Force The Condo Board To Let Me Close on my NYC Condo Sale
The first thing to do is speak to your attorney and your agent. Your team is there to help you through this because they’re more experienced at handling these scenarios and it keeps you from having to do all the heavy lifting. It also shields you from a potentially charged and emotional situation.
It’s essential to get the attorneys for both parties involved as well. Usually, by this point, buyer and seller are in complete agreement on everything and are no longer negotiating against each other, so they can work together to present a united front to the board to pressure them into action. As a seller, first speak to your attorney and ask about options and have your attorney reach out to their counterpart on the buyer’s as well. They probably already will have, but just make sure.
Here on our team, our agents are very proactive in communication with our clients’ attorneys, as well as the attorney on the other side if necessary, and we’ll often step in to help here because we’re typically more familiar with this process than our average client, and we’ll be more aware of the steps that need to be taken and what avenues are available. Here is where having an experienced agent or team, with strong attorney relationships, can be invaluable.
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Sometimes your agent and your attorney may have difficulty making headway with management or the board. In an instance like this, they may have you reach out to management and try to ascertain on what basis the board is refusing to issue the waiver of right of first refusal, and remind management that in most cases the right of first refusal must be exercised or the waiver issued according to the timeline stated in the by-laws. Since the seller is the only one in the transaction that actually has a direct relationship with the management company and/or the board, they often have the most leverage in communications.
If you don’t have the info already, ask management – with your attorney’s guidance – to be put in touch with the board to discuss the matter directly. They generally won’t provide personal information of the board members, but sometimes there is a general email or even a phone number where communication can be sent to the board directly. In all this communication it’s important to be direct and assertive, but not get emotional, angry, or combative. That will likely make the problem worse.
If this hasn’t been successful, then the attorneys can work on making the closing happen without the board’s waiver letter. This may involve the buyer’s attorney working with the title company to make it happen, as the title company will often have issues with this scenario. The title company may suggest that a letter be issued to the board by the seller’s attorney giving what is essentially an ultimatum, and, if the board does not comply, the title company will grant an exception and permit the closing. This is on a case by case basis, so it’s really important to have a great buyer’s attorney on the deal, and a good team representing the seller, who know how to make things happen.
Lastly, if this isn’t possible, then it’s time for the lawyers to get involved more strenuously and have them threaten legal action, if they feel that is required or an option. Often, just the threat of a lawsuit from one or both attorneys is enough to “shake the fruit from the tree” and get the board to act. But if they don’t act, then a lawsuit may be the only way to force the issue.
Should I Sue My Condo Board To Let Me Sell My NYC Condo?
It’s important to stress that this is a one-in-a-million type scenario. For a condo board to act so out of the norm and for a closing to get to the extreme where a lawsuit is necessary in order to force a closing is extremely rare. However, similar lawsuits have happened. The question over whether to sue is not an easy one to answer and is definitely one you should reserve for your attorney. Some of the considerations will be the time and expense involved, as well as the likelihood of success, and whether the benefits and likelihood of success outweigh any alternatives. It’s a last resort, to be sure, and anything that can be done to avoid lengthy and expensive litigation is probably worth doing.
Litigation may even be warranted from either the buyer or the seller even if the board does eventually permit the sale. If one of the parties was unfairly injured in some way – either economically, financially, or otherwise – by the board’s actions, they might want to seek compensation through the legal system, but that’s a whole topic unto itself for another day or with an attorney.
What Your Agent Can Do
An experienced agent or team is key for any situation like this. When everything is going right, you might not notice everything a great agent does for you, but when things go wrong, working with a great, experienced, agent or team makes all the difference.
As a team that has closed over 450 transactions and that has more than 50 years of combined experience between us, we have seen virtually every scenario imaginable. That level of experience has also exposed us to great attorneys and partners that we can call on to create a “dream team” for our clients that is not only familiar with these situations, but knows how to work productively and creatively to resolve issues like these so that you can rest easier.
If you’re looking to buy or sell a property and interested in working with an experienced, highly professional team of agents, and finding a great attorney to help you in your sale or purchase, reach out to us today at firstname.lastname@example.org or 646-624-9302!