Q: I am a licensed real estate salesperson and I am working on a sale of a co-op apartment (the co-op was converted in the 1960s) and the co-op no longer has a copy of its offering plan. Is it unusual for a co-op not to have a copy of its offering plan? What are other documents (other than the offering plan) a purchaser should review when conducting their due diligence of the co-op?
A: Most co-ops usually have a copy of its offering plan. However, for co-ops which were converted many years ago, it is not unusual for the offering plan to be unavailable.
Offering plans are generally divided into two parts:
Part 1 contains, but is not limited to, the following:
- Special risks of purchasing the co-op
- Definitions used in the offering plan
- Budget for the first year of the co-op operation
- Procedure to purchase the co-op
- Changes in prices and units
- Interim leases
- Effective date and closing date
- Contract of sale (when purchasing from the sponsor)
- Sponsor’s profits
Part 2 contains, but is not limited to, the following:
- Subscription agreement (if a tenant is purchasing the apartment)
- Report of the present building condition
- By-Laws of the co-op corporation
- Proprietary lease of the co-op corporation
- House rules of the co-op corporation
When analyzing the documents contained in the offering plan, it becomes evident that, as time passes, the documents become less relevant. For example, the budget for the co-op in the 1960s has no relevance to the co-op’s budget today. Accordingly, an older co-op’s lack of an offering plan should not be an impediment to the due diligence conducted by a purchaser or the purchaser’s attorney (provided that items 3-5 of Part 2 (the By-Laws, Proprietary Lease and House Rules) are available for review).
More specifically, when a purchaser or the purchaser’s attorney conducts their due diligence on the co-op, the following co-op documents should be reviewed: (i) board minutes; (ii) building questionnaire completed by the co-op’s managing agent, (iii) the two most recently audited financial statements, (iv) the By-Laws, (v) the Proprietary Lease and (vi) the House Rules.
The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP