Condo boards are asking more and more of buyers. How much documentation are they allowed to require?
If you really want the apartment, what a condo board is technically allowed to do may not matter.
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One of the most attractive aspects of purchasing a condo in New York City has long been the comparative ease of buying relative to co-ops, given that condo buyers are spared the invasive board approval process.
"A condo board has a right of first refusal," real estate lawyer Adam Stone of The Stone Law Firm explains. "Either they exercise the right to buy the condo from the owner within the right time frame or they say, 'We waive our right. Go ahead.'"
Nowadays, though, Stone says that some active condo boards are starting to look more and more like co-op boards in how they treat sales.
"They'll say, 'We'll waive our right if the buyer puts two years of common charges into escrow,'" Stone says. Generally speaking, that's not okay.
"That's something co-ops do," Stone explains. "Condos have no legal authority to do so, unless their bylaws say they may issue a conditional approval. But it doesn't mean they don't try."
It is, however, common for condo building bylaws to present extra hoops, like one or two years of common charges paid up front, if the buyer is a limited liability corporation. The crucial factor when scrutinizing what feels like condo board overreach is what is says in those bylaws.
"You can't make the rules up as you go along," Stone says. "If you don't like that as a board member, maybe you should be living in a co-op where you have more control."
Condo boards getting a case of the co-ops didn't happen overnight, according to attorney Aaron Shmulewitz of the firm Belkin Burden Wenig & Goldman. He traces the trend back to increased scrutiny of buyers after 9-11.
"Condo boards realized they were an open door for people all over the world to buy an apartment, and they didn't know who was living in or owned units," he says. "It was perceived as a security risk."
The second blow to the more hands-off condo approach, according to Shmulewitz, was the real estate and market crash of 2008. The downturn exposed the financial risk of not screening buyers, as owners were going into default and hurting the fiscal health of buildings. As a result, some condo boards started pushing the envelope when it comes to screening, some knowingly, some not.
"Some will say the bylaws give them the right to ask for stuff, but most do not give boards explicit right to ask for things," Shmulewitz says. Instead, standard contract language is "such other information as the board shall reasonably require." And that, of course, is up for interpretation.
"What is reasonable?," Shmulewitz says. "Is it five years of tax returns? Is it one? Is it bank statements? Income statements? In the old days they almost never asked. It's what made buying a condo so attractive."
Stone says that most condo board members (and certainly, building managing agents and attorneys) are well aware of what they technically can and cannot ask of a buyer. And when they step over the line, their motivations aren't necessarily sinister.
"Sometimes it's condo boards who are trying to do the right thing for the building. They're trying to pick the right purchaser," he says.
Other times, though, intensive requirements might be a way of discouraging a potential buyer, by wearing her down with repeated requests for more information.
"You can challenge them and see if they back down," Stone says. "But if you resist, they might make life difficult for you, saying, 'Your first application is not complete. Do this, and this,' and just keep going indefinitely."
In the end, if you really want the apartment and the burdensome request isn't impossible to fulfill, complying is typically the least money- and time-intensive option.
"Most purchasers don't push back, because A) It's not unreasonable, and B) It's easier to put up six months of maintenance or get a guarantor," Shmulewitz says. "People make a business decision and take the path of least resistance."
One unappetizing possibility when the buyer drags her feet is that the seller can claim the buyer is in default for not providing reasonably requested documents, which can take costly litigation to resolve if she really wants that apartment. It's a headache most people choose to avoid if at all possible.
This isn't just a trend, Shmulewitz argues. He sees it as a new industry standard in the condo market. And though higher-end condo boards are asking for more documentation, they're still less intrusive than comparatively affordable New York co-ops.
"You pick your poison," he says.
