Selling a Co-op in NYC: The Critical Elements of a Contract of Sale
Real Estate Attorney NYC
A typical real estate sale contract is complex, densely written, and jammed with legal jargon. It is very possible to simply overlook or misinterpret a single clause that may result in a loss of thousands of dollars. Most Sellers do not have the linguistic competency or even just leisure to fully decipher the meaning of the terms and conditions in a Contract of Sale. Fortunately, Kishner Miller Himes will have the patience, developed critical analysis skills, and legal knowledge to thoroughly evaluate if the terms and conditions in a Contract of Sale are well tailored to protect the Cooperative Seller’s interests. There are of course many representations and protections that you are seeking. Kishner Miller Himes will try make certain that each and every term of the deal made between the Parties is clearly contained in the Contract of Sale. There are a wide variety of common terms and conditions in a Contract of Sale that need to be addressed in a Cooperative real estate transaction.
The Contract of Sale has several essential components. For new a prospective Seller, it is informative to have a basic understanding of the standard Contract of Sale. The following is a list of some of the components of what is contained in a common contract of sale.
1. Identification of the parties. While for the seller this may seem like an easy issue, it is important that the correct seller be named. The correct seller is generally identified in the document commonly known as the proprietary lease and that shares that the seller owned when it first acquired the unit. The same issue exists for a purchaser, who must be specifically identified. A Cooperative board will want to know exactly who the purchaser is and why the purchaser was chosen as opposed to a potential occupant. There is a large distinction between a proposed occupant in a unit and a proposed actual purchaser. This must be distinguished from one another.
2. Identification of the unit. Every Cooperative unit has a distinct unit number, an amount of shares and a proprietary lease end date.
3. Escrow agent. The contract of sale identifies the escrow agent, the entity that holds the contract deposit. This escrow agent, is generally the sellers attorney. As such, it is important to understand, that when you hear the term escrow agent a/k/a escrowee, that this is also referring to the sellers attorney.
4. Real estate broker. You want to ensure that your real estate broker is appropriately listed in the contract of sale and that further any real estate broker that may have been used by the purchaser is also listed in the contract of sale. Failure to name a real estate broker could lead to many issues.
5. Personal property. It is very important to list what personal property will be leaving and what personal property will be staying in the unit. While this concept may seem easy, that all personal property such as tables and chairs are removed, it starts getting more difficult when dealing with such items as lighting fixtures, curtains, blinds, sleeve air-conditioning units, etc. What is left in the unit and what is removed it must be carefully analyzed as to avoid any closing issues.
6. Included interests. Included interests deal with such items as storage, parking spaces, etc. This will need to be identified as to whether this is being included and/or excluded.
7. Closing date. A closing date is generally an “on or about” closing date. An “on about” closing date means that the closing date actually listed in the contract of sale may not be the particular date on which the closing occurs. As such, it is an estimate as to when the closing occurs and allows either party a reasonable opportunity to perform subsequent to the closing date listed in the contract of sale assuming that everything is in place to allow a closing to move forward. Of course, a closing may not move forward if the board has not issued its approval or some other issue like a purchaser’s bank is not capable of funding a loan. A closing date must be carefully structured with your attorney.
8. Proceeds. While it may seem rather obvious that you are entitled to as a seller to receive the balance of the proceeds at the closing, how you receive those proceeds may differ. Generally, you want to ensure that the proceeds are being delivered to you via an official bank check/certified check being drawn from a bank having a clearinghouse in New York. It is surprising how many transactions in which a check from some local credit union in Iowa(nothing against the great state of Iowa) is issued and this may be a problem in order to confirm that you are definitively receiving all of your proceeds and not having any difficulty when you are going to your New York Bank to make deposit immediately following a closing.
9. Maintenance and assessment: it is important to identify the correct maintenance as well as any assessments currently affecting the unit. It is always best to supply your attorney with your last maintenance invoice so that there may be no confusion as to what your exact maintenance and assessment, if any, currently is on the unit.
10. Flip tax. While this may not affect all transactions, it certainly affects many transactions. As such, who pays for the flip tax should be succinctly stated. It should not be left for interpretation as to who was responsible for payment of the flip tax. It should be noted, that a flip tax is also sometimes known as a transfer fee.
11. Financing options: it must be known exactly how the purchaser is acquiring the unit by way of where the proceeds are being derived from. Hopefully, if you have a real estate broker, they have already formulated a strategy and discussed with the purchaser how the purchaser intends on acquiring the unit. There are different financing options. One of the easiest options on how a purchaser acquires the unit is that the purchaser shall not be applying for financing at all in connection with the transaction and, in this instance, is informing the seller that it is an “all cash” transaction. Another option is that the purchaser while making formal application to an institutional lender to obtain financing is not making the transaction contingent upon its ability to obtain financing. This is very different from an “all cash” transaction as in this method the transaction is simply not contingent but by no means is prohibiting the purchaser from obtaining financing. The final option is to allow the purchaser to obtain financing and that if a purchaser is not able to obtain its financing it may cancel the contract of sale. This is commonly known as a financing contingent contract. As such, it is imperative to know whether your deal is one of the following three: a. all cash transaction; 2. noncontingent transaction or c. contingent transaction.
12. Proposed occupants. It is very important not only to list the purchasers but who actually will be living in the unit i.e. proposed occupants. The proposed occupants are not always the purchasers. In many instances the purchasers may not actually be living in the unit. This is very common when parents purchase for their children. The parents may be the name of the purchasers while the proposed occupant may be the adult child.
13. Pets. As many know, pets are regulated by a cooperative. As such, it is important to know whether or not a purchaser has a pet and if a purchaser has a pet that it be so enumerated in the contract of sale;
14. Time for submission of the cooperative board application. Generally there is an amount of time that is stated from the date that the purchaser either obtains a fully signed contract of sale or from when it obtains its loan commitment letter from a bank as to when a purchaser should submits its board application. Point being, there should be some time reference for when a purchaser should be submitting its board application.
15. Time for board to make it decision. Almost every cooperative contract has a certain period of time which the board needs to make a decision as to whether or not the purchaser is being approved or at the option of the seller or purchaser, the deal may be canceled.
16. Condition of the property. There is a large debate on how a seller must deliver a property to a purchaser. It is commonly thought that what the purchaser must be delivered is only an “as is” property. However, almost all contracts are not fully “as is.” Generally a seller must deliver a working order unit to a purchaser. A working order unit means that all appliances are delivered in working order. It further means that the plumbing, heating, electrical, air-conditioning, alarm, etc. to the extent that the seller is responsible for maintaining same pursuant to the cooperative documents are in working order at the time of the closing. Another issue is how much work, if any, must the seller do in order to deliver the unit to the purchaser at the time of closing. Generally, normal and expected marks and holes ordinarily created by the removal of personal property is acceptable and should be acceptable to a purchaser. However, this is something that must be discussed in detail with your attorney.
17. Apportionments. Generally, the seller should be responsible for making any and all payments associated with the unit, including maintenance and all utilities, until the date prior to the actual date of closing. From the date of closing going forward, the responsibility should fall upon the purchaser to make all payments of maintenance, assessments, utilities, etc.
There are of course many more representations and/or contingencies contained in a contract of sale. Kishner Miller Himes will try to ensure that the Contract of Sale explicitly enumerates each Party’s respective responsibilities and protects you as the seller from getting yourself entwined in a legal confrontation because something was not appropriately drafted. Kishner and Miller are also well seasoned litigators and therefore have the ability of foreseeing many of the difficulties and challenges that arise in contract drafting process. The idea is to avoid any potential problems and this hopefully may be achieved by the drafting of a contract of sale with many protections including the possibility to void the Contract of Sale in cases where the Purchaser breaches the terms of the Contract of Sale.