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Co-ops and condos may have to spill their bed bug secrets too—for now

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It appears that a loophole in New York's three-week-old bed bug disclosure law may entitle co-op and condo buyers to the same bed bug history information as the renters the law was intended to protect.  

As currently written, the disclosure law applies to all housing that is subject to the Housing Maintenance Code--which includes co-ops and condos as well as rentals, explains real estate lawyer Jeffrey Reich.  Therefore, his firm is encouraging their co-op and condo clients “to err on the side of caution and to comply” with the new bed bug disclosure law.

Most buyers already ask about bed bugs as part of their attorneys' due diligence, notes property manager Thomas Usztoke.  (The typical question on the attorney questionnaire:  Has there been any report of bed bugs in the apartment or anywhere in the building?) But until now sellers and boards had no legal obligation to answer, according to Reich. 

And unless the loophole is closed by the state's Division of Housing and Community Renewal, it seems that co-op and condo buyers are entitled to learn whether bed bugs have been found in the apartment in the past year or anywhere in the building, down to the exact floor.

This potentially deal-busting interpretation has not escaped the notice of New York's real estate brokerage community.

Early this week, the Real Estate Board of New York circulated a memo (PDF below) to its members noting a “lack of clarity” in the new bed bug disclosure law. REBNY's residential counsel said he was engaged in "ongoing conversations" with the DHCR about whether the law does, in fact, extend to co-ops and condos.

Another real estate lawyer, Dean Roberts, tells BrickUnderground that his firm has also been investigating the issue on behalf of its co-op clients.

“In speaking with the legislator who sponsored the new law, it was not her intent to include co-ops. However, as written, the law includes them,” says Roberts. He says the DHCR is reviewing the issue and though it understands that co-ops were not supposed to be subject, it had not made a final decision.

“I have been recommending that co-ops comply with the law,” says Roberts, “in order to avoid claims from purchasers that they suffered damages, i.e., would not have purchased had they known about the bedbugs.”

However, he notes, “as there are no direct legal penalties for failing to comply—the tenant simply asks the [DHCR] to force disclosure—a co-op can elect to comply or not.”

Property manager Michael Wolfe said that since there is no mention of co-ops and condominiums in the law, he believes they do not have to follow it.

“We are waiting for any clarity before any action is taken,” he says.

Real estate lawyer Stuart Saft seconds that notion:  "I do not believe [the disclosure law] applies to co-ops, because the legislation deals with giving notice when a landlord signs a lease for a vacant apartment.  In many if not most co-ops, a new lease is not signed, but the existing lease is assigned.  In addition, the apartment is not usually vacant when the sale occurs. That's my position and I am sticking to it until the law is clarified."

As for whether co-ops and condos are actually spilling their bed bug secrets on the advice of counsel who believe the disclosure law applies? 

“I can only tell you what we are advising them,” says Reich. “I cannot be sure our advice is being followed.”

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