Emily Myers for Brick Underground
Do I have to read the offering plan for my new condo? Is it negotiable?
“As a buyer in New York, you may not need to read the entire offering plan but someone does, typically your attorney, and they should explain to you the details of it,” says Steven Wagner, a real estate attorney at the Manhattan law firm Wagner, Berkow & Brandt who represents co-op and condo boards and owners.
Buying an apartment that’s under construction involves risk: There’s no history of how the building is run and the offering plan serves as your charter about what you’re buying. It contains information from the developer about pricing, buying procedures, floor plans, building bylaws, and other important details.
You should receive the offering plan at least three business days before signing a contract, so if you come across items that are deal breakers and can’t be negotiated, you have a limited window of a few days to walk away from the deal.
In some cases the offering plan is negotiable but certain items are not. “The common interest allocated to your apartment or the common charges you pay—that’s not something that’s negotiable,” Wagner says.
How to read an offering plan
Over the years, offering plans have grown in size to hundreds of pages and the language can feel opaque if you’re not familiar with legal documents. They are typically organized into two parts.
“Part one explains the features of the building, and the procedure for buying it from the developer,” Wagner says. It has details about how the down payment will be handled, when closing will take place, who will pay the various taxes and closing costs, how to contact the developer if there are construction issues, and how the developer will operate the building.
“Most developers insert into offering plans limited windows for reporting construction defects and commencing litigation, if necessary. If you experience these issues, it’s essential to notify the developer in the time and manner prescribed in the offering plan,” Wagner says.
The second part of the offering plan includes exhibits; a copy of the purchase agreement; the condominium declaration and by-laws; floor plans; and an architect’s description of the building’s components.
Avoiding unpleasant surprises
You should be aware that developers typically calculate the square footage of a condo from the outside of the exterior walls. On paper this makes the condo look larger than it is if you calculated livable space.
“This manner of measurement is disclosed in the offering plan and is allowed. It’s an example of items in the offering plan that might not make sense to you but are perfectly legal,” Wagner says. Similarly, the offering plan may include language that allows material changes to the apartment you’re buying. You may want to negotiate these details with the developer and, in many cases, your attorney can advocate for you in these situations.
Wagner dealt with one new construction deal where the developer reduced the size of the lobby to facilitate a medical office. This was not outlined in the offering plan and Wagner successfully negotiated with the developer to leave the lobby unchanged. The plans for a medical office were scrapped.
In another situation, Wagner represented a client who wanted to buy and then combine two apartments in a brand new building. Another buyer, directly above, was doing the same and negotiated with the developer to drop the ceiling of the lower floor apartment in order to install a single heating and air conditioning system.
Wagner’s client took issue with the new ceiling height in her apartment which was a few inches above the legal limit of eight feet.
“The developer took the position that material changes had been disclosed in the offering plan. I took the position that we would sue and tie up the property in a lawsuit for some time,” Wagner says. In the end a deal was negotiated where Wagner’s client would only buy one apartment, and it would be one without a dropped ceiling.
Wagner also represented a buyer in a condo building where columns were a feature of the building’s interior. His client picked an apartment off the offering plan’s floor plans which didn’t have columns in the sitting room but when she went to inspect the apartment, there was a column there. “It was a very large column near the corner of the living room and it was not shown in the offering plan,” Wagner says.
The developer argued they had the right to make that change according to the language of the offering plan. However, Wagner identified that many other floor plans in the same building had been shown to include columns. His client has specifically chosen one which did not have a structural column.
“We argued it was fraud and we wanted to take it to the attorney general’s office. The developer let us out of the contract and returned my client’s contract deposit,” Wagner says.
Understanding the special risks
As a buyer, you should familiarize yourself with the special risks of your offering plan. For instance, if the developer owns an adjacent parcel of land, which looks like a nice park, they might have the right to build on it and alter the views from your apartment. “That ought to be disclosed as a special risk,” Wagner says.
Another issue might be if there’s a large commercial unit on the ground floor of a residential building. The condo owners typically have no say in how that commercial unit is used. “What is a low-traffic, high-end boutique initially could become a noisy diner tomorrow,” Wagner says. A buyer might then consider buying on the 10th floor rather than the second.
If the building is a leasehold co-op or a leasehold condo (rather than freehold) the developer will be renting the land where the building sits. This is something your attorney will definitely flag because it means the building has to pay rent and that cost may go up over time. This will affect the maintenance or common charges in the future.
“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,” Wagner says.
It’s fairly common for the offering plan to state there’s no financing contingency. “This means if you sign a contract you won’t be able to get your deposit back if you can’t come up with the money to close,” Wagner says.
An experienced real estate lawyer will know where to look for the information that’s important or unique to your situation and expectations.
What’s negotiable in the offering plan
While some things are not negotiable in an offering plan, such as the common charges, which are based on the percentage of the building that you’ll own—or your common interest—other details might be negotiable.
“The fine print will typically say the price of the apartment is negotiable,” Wagner says. “Some people think that because it’s a document that’s filed with the attorney general the price is not negotiable, but that’s incorrect.”
What more can be negotiated will vary depending on the type of apartment, the location, the market, and who you’re buying from. “Some developers are going to negotiate, while others want nothing to do with it,” Wagner says.
In addition to the price, and depending on the market, you may be able to negotiate who pays the transfer taxes and closing costs. You might also be able to negotiate for upgraded fixtures and appliances. Wagner says there’s usually language in the offering plan stating that appliances will be a certain brand or equivalent. “If you’re supposed to be getting high-end appliances like Wolf or Sub-Zero, you want to get that—you don’t want inferior products that the sponsor claims are equivalent,” he says.
You may also be able to negotiate certain building amenities, such as access to storage lockers or parking spaces.
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.
You Might Also Like