No Offering Plan for Co-op

May 11, 2018 | By Charles Botensten

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:

  1. Special risks of purchasing the co-op
  2. Definitions used in the offering plan
  3. Budget for the first year of the co-op operation
  4. Procedure to purchase the co-op
  5. Changes in prices and units
  6. Interim leases
  7. Effective date and closing date
  8. Contract of sale (when purchasing from the sponsor)
  9. Sponsor’s profits

 

Part 2 contains, but is not limited to, the following:

  1. Subscription agreement (if a tenant is purchasing the apartment)
  2. Report of the present building condition
  3. By-Laws of the co-op corporation
  4. Proprietary lease of the co-op corporation
  5. 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