IS THAT A CONDOMINIUM OR A COOP? – CONDITIONS ON THE ISSUANCE OF THE WAIVER

January 19, 2014

These days it is getting harder to tell the difference as many condominiums are seeking to impose conditions on the issuance of the waiver of the condominium’s right of first refusal.  This is a particularly important consideration as many buyers opt to purchase condominiums versus coops based on the presumption that condominiums impose fewer restrictions on sales/purchases.  However, due to the greater use of limited liability companies, family trusts and corporations as a vehicle to take title and the influx of foreign money over the years, condominiums are attempting to impose conditions on the issuance of the waiver of the right of first refusal.  Typically such conditions can include some or all of the following:  an escrow for common charges (one year or longer); requirement of a personal guaranty; an escrow for real estate taxes; or other similar items and combinations thereof.

 

While the concept has been around for quite some time, attempts by condominiums to impose conditions on the issuance of the waiver is being requested more and more frequently nowadays.  The first thing to point out is that most condominiums do not have the authority in their by-laws to impose such conditions on the issuance of the waiver of the right of first refusal.  Generally, a condominium has a waiver of the right of first refusal, which is the right to either (a) purchase a condominium unit upon the same terms and conditions as the offer or (b) waive such right and allow the sale to be consummated.  Most condominium by-laws do not have the appropriate language to allow a condominium to condition the waiver upon the satisfaction of certain conditions (i.e. escrow for common charges, personal guaranty, etc.).  Notwithstanding the lack of authority, many condominiums still try to impose restrictions or conditions upon the issuance of the waiver.

 

If representing a purchaser, there are a few ways to avoid a protracted controversy with regard to this issue.  The first and best way is to insert a clause in the contract to allow a purchaser to cancel the contract if a condominium seeks to impose unreasonable conditions on the issuance of the waiver.  While this is not the most helpful if a purchaser still wants to consummate the deal, it may allow for some renegotiation so that the deal can be consummated.

 

In the absence of a clause in the contract, the parties can attempt to negotiate with the condominium (and/or its managing agent or attorneys) by advising them that the condominium does not have the authority to make such a request in its by-laws.  Unfortunately, many condominiums are stubborn and this avenue is not always fruitful unless you stand your ground.  The goal here is to have the condominium acquiesce and waive the condition or soften the conditions (i.e. one year escrow instead of two, guaranty instead of an escrow, burn-off of the escrow if common charges are paid on time for one year, etc.).  A seller that has a relationship with a board member can be particularly helpful in this regard.

 

As a last resort, the parties can always pursue litigation against the condominium.  While the end result may be achieved through litigation, it will not be without significant time and expense.  In addition, as the purchaser of a condominium unit, having the name tag “Hello – My name is 'person that sued the condominium to get in'” is not the label a new owner wants to have.  Avoid litigation if possible.

 

In short, the best way to deal with conditions being imposed on the issuance of the waiver is to negotiate the issue in the contract.

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