You are looking to purchase an apartment and you see that the apartment number is something like “Unit 8AB”. Or, you learn through other means that the apartment was previously two apartments that had been combined into one. Your antennae should definitely go up, and there are a number of considerations for you to discuss with your broker and especially your attorney before you sign a contract. Specifically, you need to make sure that both the Department of Buildings (or other municipal department responsible for approving a combination if outside NYC) and the coop or condo have approved the combination.
1. Make sure the combination has been legalized with the Department of Buildings
If you are purchasing an apartment that has already been combined, the main concern is that the combination was done correctly. In order to be certain of this, you need to check the records of the Department of Buildings (“DOB”) to see if the combination was approved. There has to have been a permit (an “Alt-2” permit) issued by the DOB in order for the work to begin. This permit, which would have been submitted to the DOB by the architect or contractor who worked on the combination, shows that the work was started, but does not mean that the work was completed. In order to prove that the job was finished, the permit has to have been closed, and a letter of completion issued by the DOB.
Most coop and condo contracts will include representations by the seller that any work was performed in compliance with law. Closing the permit and providing the letter of completion satisfies this contractual requirement. If you do not see a letter of completion on the DOB records, you should insist that the seller take the steps necessary to obtain it, as it is seller’s responsibility to do so. There could be a few situations where the seller refuses to take the action necessary to obtain the letter of completion from the DOB. What are these situations, what are the potential pitfalls and what can a purchaser do?
– Seller says the work was done: The work may have been done; however, on some occasions, the contractor/architect who filed the permit and did the work may not have followed through to file the documentation necessary to close the permit, even after the work has actually been completed. If seller refuses to take the steps necessary to close the permit, you should ask that the sale price be reduced by the amount necessary for you to hire a contractor/architect to inspect the apartment and submit the necessary paperwork to obtain the letter of completion. This is expensive (likely to cost thousands of dollars) and risky, as you do not know whether the work was done correctly. If it wasn’t, your contractor/architect will need to correct the work in order for the job to be considered complete, which will likely come with a steep price tag, and could take quite a bit of time. If seller refuses to reduce the sale price, you, as the purchaser, have to decide whether you want to move forward with the additional burden, expense and risk of legalizing the combination yourself.
– Seller says the combination was done by a previous owner: If this is true, then seller had the responsibility, at the time seller purchased the apartment, to ensure that it had been legally combined (just as you are doing right now!). Seller’s failure to do so at the time seller bought the apartment does not absolve seller from the responsibility to legalize the combination now. If seller refuses to legalize the combination, you should ask that the sale price be reduced by the amount necessary for you to hire a contractor/architect to submit the necessary paperwork to obtain the letter of completion. The same risks apply as in the scenario above.
– Seller just refuses to take any steps to legalize the combination or to reduce the sale price: Is this just laziness, obstinance or something else? Whatever the reason, it should certainly be a red flag to any purchaser if the seller refuses to take the steps necessary to legalize the combination of the units.
2. Make sure the coop/condo has approved the combination
In addition to approval by the Department of Buildings, you must make certain that the coop/condo has approved the combination.
Coop: There are two ways to determine whether the coop has approved the combination:
– Alteration agreement where required: Most coops have an alteration agreement that must be submitted whenever significant work is being done. If an alteration agreement is required, it may require a review by the coop’s architect or engineer to ensure that nothing was changed that is structural in nature or would have an impact on other units or common areas. Your attorney should check with the managing agent as part of the pre-contract due diligence to determine whether an alteration agreement was filed for the combination. If the coop does not require an alteration agreement, your attorney should ask the managing agent whether the coop otherwise gave its approval to the combination.
– Combined stock certificates/proprietary leases where required: If there is one stock certificate and one proprietary lease (and one bill for monthly maintenance), this is generally sufficient proof that the coop is aware of and has approved the combination, even in the absence of an alteration agreement. If there are two stock certificates, this does not necessarily mean that the coop has not approved the transfer. There may be separate electrical, gas or water meters for each apartment or other reasons that make it easier for the coop to keep the units separate for its own internal record-keeping. Once again, your attorney should ask the managing agent whether the coop otherwise gave its approval to the combination.
Condo: Condo approval can be a bit more complicated than coop approval. There are a number of things to consider:
As with a coop, you have to determine whether an alteration agreement is required, and if so, was it filed with the condo Board of Managers or managing agent?
– Is there one common charge bill for the combined unit or are there two common charge bills? If there is one common charge bill, this is generally sufficient proof that the condo has given its blessing to the combination. As with coop maintenance bills, if there are two separate common charge bills, this does not necessarily mean that the combination was not approved. See the discussion regarding coops above.
– Were tax lots combined/was declaration amended? Each condo unit has its own tax lot assigned by the Department of Finance (or other similar taxing authority if outside of NYC). The condo’s Declaration is recorded against each individual tax lot. If the tax lots have been combined, this means that the Declaration has likely been amended to reflect the combination, which is dispositive evidence that the combination of the units has been approved by the condo. However, if the tax lots were not combined, this does not mean that the condo has not approved the combination. Most condos will not require that a unit owner have the tax lots combined and the Declaration amended (which is a costly process that would be paid for by the unit owner). Your attorney should ask the managing agent whether the condo otherwise gave its approval to the combination.
Purchasing a combined apartment can present you with a terrific opportunity to get the space you need in a square footage-challenged environment. Just be certain that you have an attorney who is able to navigate you through the process to ensure that it will not become more expensive and troublesome than what you bargained for.