Residential Realities: January 2020
I Know a Guy...
New Yorkers pride themselves on knowing someone who can get something done at a reduced cost, on an expedited basis or without anyone knowing about it. Consider it street cred or bragging rights. That being said, one area where “knowing a guy” can get you into a lot of trouble financially and psychologically, is undertaking a material alteration in a co-op or condo without obtaining the consent of the co-op or condo Board and without making the necessary filings with the New York City Department of Buildings ("DOB").
In more innocent cases, an apartment owner might think everything was done correctly, but finds out the contractor or architect did not finish the sign off process.Although it’s not as easy as it was years ago to undertake alterations in an apartment without obtaining the required consents, it still happens, particularly in smaller buildings where the scrutiny on such things is minimal or non-existent. Sometimes an apartment owner will obtain the approvals, but will have the contractor go beyond what was approved and filed for. For many years, this approach by the fearless, but irresponsible apartment owner did not have great risk. But today, attorneys are actively checking the current configuration of an apartment compared with what the offering plan described.
How might the issue arise?
Let’s say that someone is selling a one bedroom apartment that is listed by the broker as having a bath and a half. That is, a bathroom and a powder room. The offering plan shows only one bath. A check of the online filings with DOB shows no application or approval for the addition of the half bath. At some point, either the current seller or a previous owner (unbeknownst to the current seller), added a powder room without the appropriate DOB filings, and perhaps, without the approval of the co-op or condo Board. Now it is possible that consent of the co-op or condo was obtained, but the owner’s contractor or architect failed to make the required DOB filings or failed to complete the process. As I have experienced many times, the reality of this omission often does not come up until the seller is about to go into contract on the sale of the apartment. Assuming that the unauthorized alteration does not kill the deal, the seller is then put in the position of having to “legalize” the alteration, by making the filings with DOB that should have been made when the alteration was first undertaken. That process will require the seller to hire an architect and contractor at significant cost and to incur penalties for the late filing of the proposed alteration with DOB. In the nightmare situation, the alteration that was not filed for cannot be legalized for various technical reasons. That will require the seller to return the apartment to the configuration or condition that existed before the alteration was made. That does not happen very often, but it can.
What to Look Out For...
The most common example of either the failure to file or failure to complete the process is the combination of two apartments. Sometimes the combination is actually filed for by the owner’s contractor, but the sign off process with DOB is never completed. In most cases, the DOB process can be completed, but it can take weeks and often months to get the closure needed by DOB, evidenced by the issuance of a “letter of completion”.
A classic nudge, nudge, wink, wink, alteration that is often not filed for is the installation of a washing machine and dryer. Assuming that the building's governing documents allow for installation of a washer machine and dryer (which is not always the case), legalizing such an installation should be possible by the filing and sign off of a certain type of plumbing permit.
Apartment owners also have a nasty habit of removing walls or installing walls without consent. The detective works starts when the apartment is listed as a two bedroom, one bath. It does not take Sherlock Holmes to figure out something is wrong when the offering plan lists the apartment as a one bedroom, one bath. Usually, removing a wall, provided it is not a structural wall, will not create insurmountable problems for legalization. Adding a wall is another story. There are very specific (and often changing) DOB requirements for light and ventilation in an apartment. Rooms that do not have the minimum required light and air specifications will not be approved by DOB. If such is the case, the apartment owner will be forced to return the apartment to its original configuration, which may materially change the value of the apartment.
Another situation that requires investigation is a listing that promotes the apartment as being “completely renovated” or “updated”. The purchaser’s attorney usually will ask the client what condition the apartment is in. When the client says, “oh, the seller did a gut renovation”, the attorney’s next step will be to check the DOB website for filings. In most cases today, the selling apartment owner jumped through the necessary hoops, but there may still be an open permit that will need to be signed off before the closing. It’s a hassle for the seller, but something that can be accomplished assuming the closing is 60 or 90 days away. On the other hand, if nothing was filed with DOB, it can be a major undertaking to make things right that might take months to complete. The most egregious and complicated situations arise with unauthorized alterations undertaken 20, 30 or 40 years ago. The DOB revises requirements often and what was permitted 30 years ago may not fly today. Those situations do not have a one size fits all solution.
Unexpected Liability
Liability for an unauthorized alteration can arise unexpectedly. Most co-op and condo buildings require a purchaser to execute an "assumption document" by which the purchaser assumes liability for alterations made by their seller, and in some cases, for all alterations made in the apartment. Often, the assumption document is not presented to the purchaser by the transfer agent until the day of the closing. That assumption means that the purchaser will be responsible to correct any problems with the prior alteration should the alteration be called into question in the future. One solution is to ask the seller for an indemnity that survives closing in the event that the co-op or condo does require such an assumption from the purchaser. Sellers will resist giving an indemnity, but depending upon market conditions, it’s always worth asking for and you might just get it.
Residential Reality: Kick the Tires...
Most apartment owners in New York are not wise guys trying to pull a fast one. Often, an apartment owner believes they have done everything required only to find out, someone let them down. A party expecting to list an apartment in the near future is well advised to check that all renovations were approved by the co-op or condo and completed as required by applicable law. Buyers, on the other hand, should make sure that all alterations in the apartment being considered have been approved, filed for and signed off by DOB.Renovating an apartment in New York City is no easy task. Making sure that all required approvals and sign offs were obtained can save a lot of grief and cost down the road.
