What To Look For In An Offering Plan
The purchase of a unit in a cooperative or condominium has significant legal and financial consequences, so prospective buyers should always be sure to consult with a competent real estate attorney prior to signing a purchase agreement. These purchases present an additional challenge to buyers in the form of a voluminous and legalistic document known as an Offering Plan. Co-ops and condos are subject to the Martin Act, which requires that the complete terms and conditions of the property be fully outlined in an offering plan. Many offering plans can be anywhere from 300-500 pages long.
The offering plan itself contains an array of information, including floor plans, unit sizes, architect’s reports, calculation of common charges or maintenance, types of appliances to be installed, how many units the sponsor plans to rent, as well as a Special Risks section that is perhaps the most important provision in a new offering. The Attorney General requires that all of these details be apparent. Most buyers will never read through the offering plan, so a good real estate attorney will carefully review all of the relevant details to arm the client with the necessary information in order to make an informed decision on whether or not to purchase.
A buyer seeking to finance their purchase should pay close attention to how many units, if any, the sponsor plans to hold to rent. While bank requirements vary from one to another, many banks do not lend in buildings with low owner-occupancy rates. If the offering plan does not contain a mortgage contingency, buyers could be in for a rude awakening when they lose their down payment. Buyers should also be aware of unexpected costs, which may be specifically imposed on one party or the other in the offering plan. Unit closing costs and adjustments, real estate taxes and offering prices are all laid out in detail so that the buyer can precisely understand the potential costs involved.
The Attorney General requires that items such as recreational facilities, landscaping and appliances and amenities within units be described in detail. The offering plan will include floor plans of recreational facilities and buildings, descriptions of equipment to be installed, information regarding types of trees and landscaping to be planted and the type and model numbers of appliances to be installed and whether the unit will contain any other amenities such as a fireplace. The task for the buyer in analyzing these details is to get a general sense of the quality of the development and to understand what is promised and what is not. If an item or amenity is not promised in the offering plan, the sponsor is under no obligation to provide it.
It is also important for the buyer to understand the bylaws and proprietary lease or condominium declaration, depending on the type of real estate being purchased. These documents establish the ownership and rules of the property, and contain specific rules regarding pets, storage, approval and performance of construction, voting rights, etc. They will also indicate how much control the sponsor has in the building, which could in turn limit the power of the condominium or co-op board.
It is important to remember that though it is very important to review the Offering Plan in a new Offering, as the Offering gets dated, and the control is handed over to the Board of Managers, the plans become less and less relevant. The Plans are supplemented with amendments which the Co-ops and Condos have to file with the Attorney General whenever there is a material change in the units being offered. Be sure to review all amendments to make sure any new critical development is not overlooked.