If you’re buying a co-op or condo, don’t fail to have the minutes of the respective Board of Directors or Board of Managers examined by your attorney.
In his advice below, lawyer Ronald Gitter–whose Web site is an essential resource for his clients and anyone else contemplating a sale or purchase–writes that the minutes can provide critical information about the physical and financial condition of the building, plus insights into its personality, or “DNA.”
Below, he outlines the five areas that demand a buyer’s attention. Only by reading the minutes as a key component of all the due diligence that your attorney performs can he or she be confident that you likely will avoid nasty surprises in the near and distant future.
It is up to you, says Gitter, to ensure that your attorney covers the following issues:
1. Reserves, maintenance and assessments. Although the old real estate mantra was “location, location, location,” now it’s “value, value, value” in the new economy. The minutes often describe a building’s cash position, the history of maintenance increases and the imposition of assessments. The Board’s ability to keep expenses in check and to avoid annual maintenance increases or assessments is always a sign good management.
2. Capital expenditures. Of great concern to co-op and condo boards are anticipated capital expenditures. Whether it’s the roof replacement, extensive façade work or elevator repairs, the cost of work, timing, and the ups and downs of the project are always discussed in the minutes.
3. Disputes and litigation. Sooner or later a dispute will arise between a unit owner and the board or with third parties that cannot be resolved in a reasonable manner. Boards try to discuss disputes and litigation in abbreviated terms, but once a dispute or litigation is mentioned, the purchaser’s attorney is on notice to start asking hard questions. Litigation can get expensive quickly, particularly if a dispute is not covered by the co-op or condo’s insurance policy. Proceed cautiously if a co-op or condo suffers from an out-of-control lawsuit.
4. Specific problems. Each co-op or condo has its own set of positives and negatives. A river view, large rooms, a great health club and other amenities, might be offset by a noisy restaurant on the ground floor, the resurrected plague of bedbugs, a flood in the seller’s apartment or major repairs for which the co-op or condo has insufficient reserves. These issues are often discussed in the minutes; how such matters are resolved is a window into the board’s judgment and its skill in running the building.
5. The intangibles. Reviewing the minutes can also reveal the personality of the building, or its DNA. The minutes reflect how the board deals with unit owner concerns, aesthetic touches such as fresh flowers in the lobby, and an insight into what it might be like to call that address “home.”
Despite the foregoing advice, boards tend to be spare in their reporting of meetings. They do so in an attempt to minimize liability or issues that might reduce the value of apartments.
Often what’s omitted from the minutes tells as much or more as the recitation of mundane day-to-day management responsibilities.
Reading the minutes can be as boring as watching grass grow. Or not. But it’s an important activity, for which you can find greater detail in “Reading the Tea Leaves: How the Minutes Reveal a Building’s DNA.”
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022