The contingency of “unconditional consent” to the transaction by the Co-op Board
If you use the “Contract of Sale – Cooperative Apartment” form prepared by the Real Property Section of the New York State Bar Association, there lies a poison pill that you may be overlooking. Clause 6.1 provides that “[t]he sale is subject to the unconditional consent of the (Co-op) Corporation.” The conditions that a co-op corporation may impose on a prospective purchaser/ transaction are limitless in magnitude, scope, and duration. Pursuant to paragraph 6.1, ‘any’ condition imposed by the board may serve as the sole basis for the purchaser to cancel the contract. A survey of the case law does not reveal a lot of guidance on this issue. However, the courts have passed judgment on the following conditions: the corporation requiring additional escrow funds (surcharge) be paid by the buyer to the co-op upon closing; and, that no pets be permitted in the premises. Other conditions, such as, the purchaser not being permitted to perform alterations to the premises, or that certain work be undertaken by the purchaser upon closing, are not unheard of. As drafters you may wish to consider superseding paragraph 6.1 in your contract rider. You may choose to make it an obligation on the part of the purchaser to re-visit the board and attempt to negotiate a resolution or annulment of the condition; that a sum certain surcharge or escrow imposed by the corporation be treated as an exempt condition; or, that any condition imposed that is apparent upon a review of the house rules (ie. pet policy) not be treated as a condition. It is also a very good idea to talk to your seller and inquire as to what conditions they are aware of, if any, that the co-op has imposed on recent transactions. This will get you added insight into the co-op corporation’s thought process and will aide you in drafting an ironclad contract that will get your client’s unit sold. Better drafting and focusing on this oft overlooked contract contingency will keep this poison pill out of your buyer’s reach and force them to the closing table.
This post is for educational and amusement purposes, only, and should not be construed or relied upon as legal advice. Please contact your attorney if you have questions or concerns. A real property litigation law firm we, do not specialize or purport to be experts in real estate contracts and transactions. Please consult with your real estate transaction attorneys for legal advice.