Real Estate Q & A: Demystifying ‘Due Diligence’ Q. I have often heard the term “due diligence” used in connection with buying an apartment. What, exactly, does the term mean? A. “Due diligence is an investigation of issues in the building that would impact a prospective buyer,” said Steven Sladkus, a Manhattan co-op and condominium lawyer. And while the due diligence conducted by the buyer’s lawyer may appear to be a legal procedure, a well-done due diligence covers everything from bedbugs to bylaw amendments and scores of issues in between. The answers to many questions, Mr. Sladkus said, can be determined by examining all the governing documents and several years of minutes of board meetings. “The board minutes are the key to the due diligence,” he said. “They contain a treasure trove of information.” Here is an abbreviated array of items that a buyer’s lawyer should diligently examine: • Are any buildingwide assessments pending, or repairs or improvements needed, that will increase maintenance costs? • Is there any litigation against the building — or litigation the board has brought — that could result in liability or legal expenses for the shareholders? • How many sponsor-owned apartments are in the building? (The more there are, the more difficult it is for a buyer to get financing.) • What are the building’s policies for subletting, flip taxes, carpeting, move-in/move-out fees, guest visits, and use of common gardens and open spaces? • Are there storage facilities, or amenities like gyms, exercise rooms, meeting rooms, pools and roof deck? How much do they cost? • Is the building under a “land lease,” in which a third party owns the land and leases it to the co-op? If so, when does the lease expire? (The remaining term on the lease should be long enough that it will not impair the buyer’s ability to sell at a later date.) • Rules pertaining to governing of the building: How many members are on the board? Are elections staggered so that there are always experienced members remaining after the election? Are there term limits? What constitutes a “supermajority” of shareholders required to amend the bylaws or proprietary lease? • Does the building have a generator for power outages? • Are there problems between shareholders? • Does the mortgage on the building itself have to be refinanced? What is the current interest rate? • Are pets allowed in the building? (via NYT, August 16, 2013)
Posted on: Sun, 18 Aug 2013 18:42:58 +0000
Trending Topics
Recently Viewed Topics
© 2015