I’m about to buy a new condo and was just handed a phonebook-sized offering plan. Do I have to read it? Is it negotiable?
The offering plan is a disclosure document for prospective buyers that contains vital information about a condo (or co-op), such as pricing, buying procedures, floor plans, building bylaws, etc.
“It is definitely something that you should look at—and that your real estate lawyer should dive into,” says Jeffrey Rendin, a real estate lawyer and partner at the firm Wagner Berkow, and the former head of enforcement for the New York state attorney general’s Real Estate Finance Bureau.
The offering plan is most important when you’re buying a new condo or co-op, especially one that’s still under construction or hasn’t converted from being a rental building yet. Where there’s no history of how the building’s been run or who’s running it,” Rendin says, “the offering plan serves sort of as your charter about what you’re buying and how it will be run.”
For co-ops and condos already in operation, he notes, “it’s more important to understand the minutes of the board and the financials of the building and how it’s currently operating, but the offering plan still is a useful reference point.”
How to read an offering plan
Offering plans are organized into two main parts.
“Part one is a narrative,” Rendin says. “It is meant to explain to the features of what you are buying, and the procedure for buying it from the developer.”
That includes how the down payments will be handled, when closing takes place, who will pay the various taxes and closing costs, contacting the developer if there are construction issues, and again, how the developer will operate the building in the beginning.
“Most developers insert into offering plans a very brief window for reporting construction defects. If you experience these issues, it’s essential to notify the developer in the time and manner prescribed in the offering plan,” Rendin warns.
Part two of the offering plan contains mostly exhibits, he says, such as a copy of the purchase agreement you’ll be asked to sign, the condominium declaration and by-laws so you know how the building will be governed into the future, as well as floor plans and an architect’s description of the building’s components.
Over the years, offering plans have grown in size and density and are “written in dense legalese because lawyers write these things, and lawyers should be the ones who really read them,” says Rendin, whose own co-op offering plan, drafted in the late 1970s, was a mere 300 pages.
Get to know your special risks
As a buyer, you should absolutely familiarize yourself with the special risks part of the first section of your offering plan, which normally runs maybe 20 pages, Rendin says.
“For instance, if the developer owns the adjacent parcel, which looks like a nice park, they might have the right to build up on it and destroy all the nice views you think you’ll be enjoying. That ought to be disclosed as a special risk.”
Other potential smoking guns include:
• The condo is a “mixed use” building
For example, there is a large commercial unit on the ground floor of a building, and residential units sit atop that. The residential unit owners typically have no say how that commercial unit is used. “What is a low-traffic, high-end boutique initially could become a noisy diner tomorrow,” Rendin says. “A potential purchaser may thus prefer to buy a unit on the tenth floor instead of the second.”
• There is no financing contingency
“That means if you sign a contract without securing financing for the purchase price, don’t expect a return of your down payment if you can’t come up with the money to close—at least not without a fight,” he says. “This is fairly common in a good market.”
• The building is a leasehold co-op or the rarer leasehold condo
This means the developer rents the land upon which the building sits. “In a situation like this, the building has to pay rent to the owner of the land, and the amount of rent may escalate over time, which will affect the maintenance or common charges in the future,” Rendin says. “Or perhaps the building’s lease is set to run out in 20 years, in which case you won’t be finding an awful lot of banks willing to lend you money to buy an apartment in this building.”
In the remainder of the offering plan, an experienced real estate lawyer will know where to look for the information that is important or unique to your situation and expectations, Rendin says.
What’s negotiable in my condo/co-op offering plan?
While some things are not negotiable in an offering plan, such as the common charges associated with the unit you’re buying, which is based on the percentage of the building that you’ll own, other things are.
“If you’re not going to read the offering plan, you’ll skip over the fine print that says the price of the unit is actually negotiable,” Rendin says. “Some people think that because it’s a document that’s filed with the attorney general the price is not negotiable, but they’re incorrect.”
What can be negotiated in your offering plan will vary depending on “what you’re buying, where you’re buying, when you’re buying it, and who you’re buying from,” Rendin says. “Some developers are going to negotiate, while others want nothing to do with it.”
In addition to the price, other things that may be negotiable, depending on your situation, include transfer taxes and closing costs, upgraded fixtures and appliances, and certain building amenities, such as storage lockers or parking spaces.
As the buyer, you should receive your offering plan at least three business days before signing a contract with the sponsor (a.k.a. the developer), Rendin says.
If you or your lawyer come across something in the offering plan that is a non-negotiable deal breaker for you, “you have a very limited window—typically a few days—to get a return of your down payment on that unit, and you can walk away scot free,” he says. That’s why it’s critical to get your offering plan to your attorney to review quickly “and speak with them honestly about what your expectations are.”
New York City real estate attorney Jeffrey Rendin is a partner of Wagner Berkow with more than 13 years of experience representing purchasers, sellers, developers, investors, banks and New York’s top regulator of condo and co-op development in all forms of transactions, litigation and regulatory matters. He is the former Chief of Enforcement of the New York State Attorney General’s Real Estate Finance Bureau. To submit a question for this column, click here. To ask about a legal consultation, send an email or call 646-791-2083.