Manhattan Loft Guy

May. 21, 2007 - NYT on Condo Rules – bury the lead but generate fear

hysteria sells old grey newspapers?

The NY Times piece yesterday about a trend in which some Manhattan condominium boards behave like coop boards (Condo Boards Tighten the Rules) is an unfortunate load of fluff on its most essential point. Yes, I agree that some condo purchase procedures resemble strict coop purchase requirements, but the most important practical consideration was not mentioned until the middle of the article, and even then not really addressed.

The “strict” condo purchase applications are only disclosure (more onerous, yes), but they are extremely unlikely to result in a purchaser failing to purchase.

Here is the key paragraph deep in the middle of the article.

While condo boards cannot stop an owner from selling an apartment, they are given the right of first refusal to buy the apartment back at the price that the owner has negotiated with the prospective buyer. But condos very rarely exercise that right since it would require the board to raise enough money to cover the transaction. And before exercising the right of first refusal, most condos also require the board to get approval from two-thirds of the unit owners, another daunting task.

In other words, condo boards can ask a lot of questions (and many are asking more questions), but at the end of the day all they can do to prevent an “undesirable” purchaser from buying is to buy it instead.

In the unlikely event that a condo board does exercise that right, the seller gets out of the building on the same terms negotiated with the buyer, but the condo board steps into the buyer’s shoes.

is it an urban myth if it happened (a few times, long ago)?

Until reading in this article about the “few times” the board at the St. Tropez at 340 East 64 St exercise the right of first refusal more than twenty years ago, I had never heard of an actual instance of a board doing this.

As stated in the buried NY Times paragraph above, if a board is going to use this extraordinary power (a) it needs to raise a lot of money and (b) it needs to persuade the condo owners to agree that the prospective buyer is a threat that warrants raising a lot of money to buy out that buyer’s right to buy.

And it has to do this within 30 days.

how would it play on Page Six?

Consider what the campaign would have to look like, what the condo board would have to tell the unit owners about the risk that the objectionable buyer presented. Absent a slam dunk issue such as the convicted child molester example, it seems to me essentially impossible for a board to be both specific enough and sufficiently well-substantiated to make a reasonable case to persuade a super-majority of the emergency. Especially with lawyers hovering over potential defamation claims.

Especially as the board would probably be asking the unit owners for an immediate assessment to cover the negotiated purchase price. (It is not likely the condo could finance the purchase price, as it all it has to offer as security is the stream of common charges.) In a 100 unit building and a $1.5mm purchase, they need agreement for everyone to write a $15,000 check now.

yes, condo boards can be a pain

The real change in condo board behavior is more irritating than fatal for transactions, and is accurately reflected in the NY Times. Boards are making it more difficult for people who own to do whatever they want with the units, both as far as renting and using (pet policies and onerous rental approval packages and fees).

That is a topic for another day (for me).

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May. 21, 2007 - NYT on Condo Rules – bury the lead but generate fear

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