It took an act of the New York state legislature to allow condominiums to come into existence as legal entities. The legislation was called The Condominium Act and was passed in 1964. The two major documents that govern a condo are the Declaration and the By-Laws. These contain legal descriptions of the property and each apartment, the percentage of undivided interest each owner has in the common areas (halls, lobby, basement, etc), the rules regarding the formation and duties of a Board of Managers, and the House Rules. Through a democratic process apartment owners vest power to the Board (which is made up of elected homeowners). In practical terms, the board is in charge of the condominium – though it usually hires a company to handle the day-to-day business of managing the operation.

Generally the By-Laws (which contain the House Rules) will tell you the stuff most important to you. Consult them to learn, among other things, what the subletting rules are, when the stereo has to be turned down, how many pets you can have (if any) and whether you can run a business out of your apartment.

The Declaration and By-Laws are contained in the Offering Plan, a document created by the original developer or Sponsor of the condo. A copy of the Offering Plan is on file with the state Attorney General. Usually your real estate agent will get a copy for you from the property manager right after your offer to buy is accepted. If you are buying into a brand new Condominium, the sponsor’s director of sales will provide one. In either case, before you actually sign a purchase contract, your lawyer will make sure that everything in the Plan is in order and point out "red flags" that may give you pause before buying. Most of these plans contain a lot of “normal boilerplate”, but sometimes they have unusual restrictions or policies relating to financing, renting, sponsor rights, furnishings, apartment usage or board powers. Your lawyer will make you aware of anything unusual.

Note: If buying a brand new condominium (perhaps one still being built), the Offering Plan is especially favorable to the Sponsor. He is the developer and so, naturally, writes the plan in a way that is most beneficial to his interests. This is not necessarily bad, but being forewarned is helpful. The truth is that most new condo developments dictate to a large degree the terms of purchase. In theory, everything is negotiable, but until market conditions soften to the point that real negotiations become possible, don’t hold your breath.

We advise taking special note of any conditions under which your deposit can be returned if you are unable to complete the purchase when your unit is ready for occupancy. From the time you sign a contract until you take possession, a year or more could easily pass. In the intervening period you might lose your job. Or the stock market collapses or you go through a divorce. Typically, none of these will get you out of an obligation to buy. If you don’t close on the property, you will likely lose your deposit (10% of the purchase price). You might, however, get out of a contract if the sponsor doesn’t deliver the square footage promised, or misrepresents an important amenity.

Also find out what the sponsor's rights are if he has construction delays and your unit won't be done when originally promised? What are your rights, if any? Usually, most delays common to the industry (strikes, material shortages, natural disasters, etc.) are covered in the contract and favor the developer. Check it out so you know.

Also, does he promise certain specific flooring, appliances, cabinets and counters, bathroom finishes, window treatments, and other furnishings? Does he list them out in the offering plan by brand and model for example. Or are his "promises" general, non-specific or ambiguous. For example, he may state he will install wood or manufactured floors, but which will it be? Old-fashioned oak or maple, or the new Pergo laminate style? Make sure your lawyer advises you on these details.

A final note on new construction. Many take delight in buying a brand spanking new apartment. Generally the building amenities are wonderful, and the units themselves are beautiful – with the wood, paint, appliances, fixtures, marble, granite and all of the other delightful furnishings essentially perfect. And of course the structural steel, concrete, windows, roof, wiring, plumbing, internet cabling, etc. are all new and state of the art. Who wouldn’t be happy with such a new home.

But here we want to note, for the sake of completeness, that there are always some construction flaws in a new building. Normally these are minor and readily corrected by the builder. The building has to "settle" also, and this inevitably means some cracks in the plaster, so to speak. These kinds of things are normal and generally not a big deal.

But sometimes something is found to be seriously amiss after you live in a new building a year or two. All new construction carries this risk. The intent here is not to discourage buying, but to make you aware that it can happen. When it does, painful litigation can result. There is no way to know whether a serious problem will come up.

When your lawyer reviews the offering plan, ask him or her if the builder has a good reputation. It’s about all you can do.

And having stated a caution on the matter, our belief is: if you like the new apartment, and absent any compelling reason not to, go ahead and go for it.

If you do want to avoid the issue altogether, buy an older property that's been through its "childhood diseases", with the original flaws long ago fixed. And, then if you can, renovate and create a "work of art" of your own. Something that perhaps rivals anything new on the market today.

Here in Summary are the essentials of Condominiums (see this section's table of contents for a more in depth discussion of many of these items):

1) When you buy a condo, you receive what is called "fee simple" title. That means you own a defined space (your apartment) in the building. Sometimes you even get an included storage locker in the basement. You receive a deed just as if you purchased a single-family home in the country. And you own an undivided interest in the common areas – the halls, lobby, courtyards, rooftop deck, exercise facilities, etc.

2) Generally you can finance any amount of the purchase price. In some cases the by-laws restrict the amount you can borrow – some boards require a minimum 10% down.

3) The building is governed by a Board of Managers made up of elected homeowners.

4) The Board sets the monthly common charges to cover operating expenses (staff salaries, management fees, maintenance contracts, heating fuel, utilities, insurance, etc.) and to fund building reserves for anticipated common area renovations, as well as roof, boiler and elevator replacement. You pay a proportionate share.

5) You pay your annual real estate taxes either directly to the city or monthly into a lender's escrow account. In the latter case, the lender then pays assessed taxes automatically on your behalf.

6) Condos don't have the underlying building mortgages common to cooperatives. In fact, up until recently, there was no statutory authority for boards to borrow money against shared assets, even if they wanted to. Relevant state laws were amended in 1997. The Condo Act now grants legal authority for boards to borrow funds against board controlled income streams or commonly owned real property assets (such as rental units the association owns), if granted the right by the homeowners in the by-laws. Such authority is rarely exercised. As a practical matter, condos usually have no common debt – in large part because they have no real property assets, collectively owned, that banks will accept as collateral for loans. Individual owners may well have a private mortgage for their personal unit, but shared building debt, paid as part of the maintenance as is common in the case of coops, is virtually non-existent.

7) Because condo boards cannot, as a practical matter, borrow money if expensive repairs are needed, such as replacement of the elevators – sometimes their only recourse is to impose special assessments on each homeowner (ideally the board has reserves to cover these expenses, but often they are inadequate). Such assessments can create hardships, as they may require each owner to come up with thousands of dollars in cash within a short time frame – often within 2-3 months. Here is where coops have an advantage. Since the corporation owns the building, if major repairs are needed, the board can borrow against it to fund expensive projects. The loan is repaid over time by raising the monthly maintenance fee.

8) Buying a condo does not require an interview with the Board. They do have requirements, however, that you must meet. Basically you give them a copy of the purchase contract and loan commitment letter if you’re taking out a mortgage, and a packet of financial information regarding your income, assets and liabilities. And a couple of character references. The Board looks over your "approval packet" and generally approves it without delay.

Note: if you are a foreign buyer with assets largely outside the US, condos are often the only realistic route to go. Coop boards can be hesitant to give purchase approval unless substantial assets are in the country.

The by-laws of most condos do give the board the legal right to purchase the unit you want to buy. It's called the "right of first refusal". The Board, however, rarely exercises this right. The best advice is: don't worry about it. Just give them all of the information they ask for and have a little patience. Then, within 20 to 30 days of receiving your packet, they nearly always sign a form saying they waive their right to purchase. You then move ahead and close on your apartment.

For completeness, we'll mention that as you might expect in New York, scattered amidst all the reasonable condo boards are a few snooty or fussy ones, and they may want to discourage you – for who knows what reason – from completing the purchase. Their tactic is one of delay. They keep asking for clarification of information provided in your approval packet or for additional information. Eventually, however, even these boards relent and waive their purchase rights.

9) If you want to sublease your unit after purchasing, have the renter fill out an application supplied by the building management company. As long as a tenant is financially sound, there is generally no restriction on who can rent or for how long.

Condos are the only option if you are purely an investor and want to sublet for income.

10) Closing costs are high relative to coops. Figure on approximately 4-5% of the purchase price. If you are buying new construction, figure on 6-7% of the purchase price.

11) If you need to sell your unit, the board does not have to approve the buyer. As long as they waive their right to purchase, which they invariably do, the sale will move ahead and be completed in due course (usually within about 60 days).

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