Consulting with an attorney is especially important at new construction condos (Pexels - Pavel Danilyuk)
In New York State, buyers must contract with an attorney to close any real estate deal. When purchasing a new construction condo, contracting with an experienced real estate attorney is particularly important due to the fact that these purchases present unique risks to buyers and nearly always take much longer than the average resale close.
To learn more about the essential role played by real estate attorneys in condo purchases, Market Insight recently talked to veteran New York City real estate attorney Robert J. Smith of the Law Office of Robert J. Smith. Smith has been practicing real estate law in New York City for over three decades and is co-author of the standard form condo contract.
To learn more about the essential role played by real estate attorneys in condo purchases, Market Insight recently talked to veteran New York City real estate attorney Robert J. Smith of the Law Office of Robert J. Smith. Smith has been practicing real estate law in New York City for over three decades and is co-author of the standard form condo contract.
The unique risks of purchasing a new construction condo
Although all real estate purchases present risks, purchasing a new construction condo presents additional risks to buyers. This is largely due to the fact that in new construction condo deals, there are certain costs that the sponsor transfers to buyers that normally would not be the buyer’s responsibility, including New York City and New York State transfer taxes. Still, the higher cost associated with closing a new construction condo deal is not the only reason these deals often entail additional risks for buyers.There are at least two other key reasons that new construction condo purchases pose unique risks. As Smith emphasizes, “Where a building has not yet been constructed or is being constructed, we need to be certain that the finished product is substantially similar to what was represented, in terms of layout and materials provided.” Timing is also a concern: “Sponsors will often provide estimates of when construction will be completed but are not willing to codify that in a contract.” For this reason, Smith says that he always works to include a “drop dead” date in condo contracts—in essence, if the deal has not closed by the “drop dead” date, the purchaser has the right to walk away from the deal. This is important, Smith adds, because it ensures that purchasers and their funds can’t be held hostage by slow-moving developers.
Lots to review in a condo's offering plan (Pixabay - advogadoaguilar)
Reviewing condo offering plans
Among other tasks, when you contract with a real estate attorney in preparation to make an offer on a new construction condo, you’re trusting them to thoroughly review the condo’s offering plan. An offering plan is a document that discloses information about a condo to a prospective buyer, including the price, buying procedures, and the building bylaws. When a building is still under construction, the offering plan also includes details on what the building will look like, what services it will offer, and how it will operate once it is completed. While this may sound straightforward, offering plans are often several hundred pages in length (for example, search the New York State Offering Plan Database).As a buyer, even if you do have the time to review an offering plan, it is important to have an experienced real estate attorney review the plan on your behalf. As Smith told Market Insight, “The due diligence process in a new construction revolves almost exclusively around a review of the Offering Plan and any amendments. The Plan is what sets forth the terms being offered by the Sponsor, and the purchase agreement should reflect what is in the Plan.” Among other items, real estate attorneys ensure sponsors haven’t included any clauses that give them the right to download additional costs at closing and ensure the sponsor is legally obliged to deliver the unit on time and in the promised conditions. Although many buyers take such conditions for granted, attorneys don’t. In a sense, attorneys are there to ensure that anything buyers assume should or will happen is written into the offering plan.
Negotiating contingencies
In real estate deals, contingencies are always important, but when purchasing a unit in a building that doesn’t yet exist, contingencies take on additional import. As already noted, timing is a key factor in any condo deal, as buyers and their attorneys naturally want to ensure that the unit in question will be finished by a certain date. In new construction condo deals, financing contingencies are also important. As Smith explained, “With regard to financing, most purchase agreements will indicate that they are not contingent on financing. If the purchaser needs financing, we have to push back and insist that the purchase agreement be amended to reflect a financing contingency.Exceptional cases
Most readers have likely come across stories about buyers taking legal action against condo developers due to delayed project completions or construction flaws. Fortunately, Smith says that in his experience, buyers rarely need to take legal action. “Disputes with developers are common,” he admits, “but I wouldn’t say that legal actions are common.” That said, when developers fail to deliver a unit as or when promised, and it affects the ability of the unit owners to enjoy the property, owners may seek redress. In these exceptional circumstances, Smith has observed that owners are almost always more successful if they band together.
Contributing Writer
Cait Etherington
Cait Etherington has over twenty years of experience working as a journalist and communications consultant. Her articles and reviews have been published in newspapers and magazines across the United States and internationally. An experienced financial writer, Cait is committed to exposing the human side of stories about contemporary business, banking and workplace relations. She also enjoys writing about trends, lifestyles and real estate in New York City where she lives with her family in a cozy apartment on the twentieth floor of a Manhattan high rise.
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