How to stop a buyout attempt in your co-op or condo building
Most New Yorkers have heard of tenant buyouts, and sometimes the ungodly amounts that are paid for some rent regulated tenants to give up their apartment. They've also heard of the less scrupulous methods many landlords use to give stabilized tenants the boot.
But if you own your apartment outright, you can't be thrown out, right? Not necessarily, says Steven Wagner, a co-op and condo attorney with Wagner Berkow LLP, who has helped multiple buildings stop buyout attempts, and also negotiated a dozen $1 million buyouts.
"Although not a common occurrence, it’s a sign of our times that developers and wealthy individuals recreate townhouses from buildings previously chopped up into smaller sized units," says Wagner. Remarkably, this includes smaller condominium and cooperatives. In these cases, the would-be buyer will try to sway the building in their direction with lucrative buyouts, or in some cases, says Wagner, "divide and conquer" by buying out one unit at a time, and keeping the deals quiet. "In other words, they prevent people from knowing the process is underway," says Wagner, so that residents won't have a chance to organize and rally a majority against the buyout.
"In a standard form cooperative proprietary lease," explains Wagner, "there is a section dedicated to termination of all of the proprietary leases and sale of the building. This rarely-used section of the proprietary lease requires 80 percent of the shares to vote in favor of termination of the proprietary leases. Upon termination, a shareholders’ meeting is convened to determine what will happen to the building."
Similarly, though it varies by building, condominium by-laws usually contain a section that allows 80 percent of the unit owners, both in number and in percentage of common interest, to terminate the condominium regime. After termination of the condominium, the unit owners are convened to decide what will happen to the building.
"What can you do if you are an apartment owner living in your dream pad in the city and some fat cat tries to force the sale of your apartment and make you move? Obviously," says Wagner, "get some of the other owners together to make sure the 20 percent threshold is not met—this is a situation where there is very much strength in numbers. Alternatively, owners could cooperate to negotiate the best deal possible."
According to Wagner, there are forms of agreements such as a “No Buyout Pledge” where the owners agree not to be bought out unless a certain minimum price or other agreed upon conditions have been met.
Be warned: There are some crazy tax issues in these buyout arrangements and even the possibility that the building may fall under rent regulation if the coop or condo is dissolved.
"You need to make sure that the amount offered will be enough after taxes to replace your apartment with something equal or better, but there is plenty of leverage for apartment owners to resist or to make it worthwhile financially if they stick together," says Wagner.
New York City real estate attorney Steven Wagner is a founding partner of Wagner, Berkow, & Brandt, with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272.
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