Understanding the New and Improved Condominium Form Contract of Sale
Virtually every condominium real estate transaction in New York City uses the standard form contract of sale (commonly referred to as the “Form Contract”) prepared by the New York City Bar Association (“NYCBA”) and New York State Bar Association (“NYSBA”). Where the Form Contract does not address every conceivable issue that may arise during the course of a real estate transaction, the Form Contract is often supplemented and modified by rider provisions (commonly referred to as “The Rider”) prepared by transactional attorneys and includes language specifically tailored to meet their client’s needs.
In response to requests from practitioners to update the Form Contract and address an ever-changing NYC real estate market, the NYCBA and NYSBA recently gave the Form Contract a facelift, and the revisions were intended to accomplish the following four (4) goals: (1) to update the Form Contract and make it easier to comprehend for parties and practitioners; (2) to incorporate provisions frequently added to the Form Contract through Rider provisions; (3) to make the Form Contract more consistent with the standard cooperative form contract of sale; and (4) to provide protections to parties and practitioners who may be unfamiliar with the Form Contract and/or with the law applicable to condominiums.
Attorneys in the Transactional Department at Adam Leitman Bailey, P.C. have recently begun using the new and improved Form Contract on several transactions to successfully protect the interests of their clients, both as sellers and purchasers of condominium units in New York City. Although not meant to be an exhaustive recitation of revisions made to the Form Contract, below are three (3) significant changes we believe that buyers and sellers should keep in mind:
(1) Par. 2.2 of the revised Form Contract imposes a credit against the seller for any understatement, whether intentional or unintentional, of common charges as stated in the contract. The amount of the credit is equal to twelve (12) times the understatement. For example, if the contract understates common charges by $100 per month, through no fault of the seller, the purchaser will be entitled to a one-time credit at closing in the amount of $1,200. Given inevitable mistakes made by managing agents in computing common charge amounts, Adam Leitman Bailey, P.C. successfully negotiated the deletion of this provision while representing a condominium seller and avoided a credit at closing for Adam Leitman Bailey, P.C.’s client.
(2) Par. 2.15 of the revised Form Contract now provides that certain representations made by sellers with respect to their unit (i.e. history leaks, alterations made by sellers and previous owners), which previously did not survive the closing of title, now survive closing for a one-year period. This is a significant change as sellers may remain vulnerable to breach of contract claims after closing where, for example, alterations made to their units by previous owners were not properly disclosed to their respective purchasers. Adam Leitman Bailey, P.C. recently negotiated the removal of this language from the Form Contract while representing the seller of a condominium unit in Long Island City, NY.
(3) Par. 19.3.3 of the revised Form Contract, which was modified to mirror the cooperative Form Contract, now entitles a purchaser to cancel their contract and seek the return of their deposit where their lender fails to fund their loan for a reason other than the purchaser/borrower (i.e. failure for the condominium board to provide a common charge letter or waiver confirmation, lapse in building insurance, etc.). Previously, purchasers generally took on the risk of lenders not funding a residential loan due to non-borrower related conditions.
Prepared by Andrew Jorges of Adam Leitman Bailey, P.C. The attorneys at Adam Leitman Bailey, P.C. are happy to discuss the revised Form Contract and other transactional related issues with sellers, prospective purchasers, and real estate professionals.