Developers need the ability to shift gears when market conditions change. If the rental market begins to flag, “for-sale” units may suddenly be the way to go. But they may need to act quickly – and condominium projects should anticipate and allow for this flexibility.
The New York Condominium Act states that the common interest appurtenant to each unit shall have a permanent character and shall not be altered without the consent of all affected unit owners. This provision may lead sponsors to conclude that the percentages of common interest allocated to the condominium units cannot be changed. However, those allocations can be relatively easy to modify, especially if potential modifications were thought through carefully when the condominium offering plan was being drafted.
The flexibility to modify percentages of common interest is useful in many contexts, but it may be particularly advantageous for developers of buildings that are planned to contain both rental
apartments (to be located in one “rental” condominium unit) that are slated to receive Section 421-a real estate tax benefits and individual for-sale condominium units to which Section 421-a does not apply. If there is a strong “for-sale” market while the building is being constructed, the developer may want to convert some of the vacant rental apartments into for-sale condominium units. This would be accomplished by reducing the common interest of the single “rental” condominium unit and allocating the remaining percentage to newly designated for-sale condominium units. The direct benefit of this strategy is that a developer can take a wait-and-see approach and gauge the strength of the sales market during much of the construction period, and then decide to offer additional units for sale or keep all of the rental apartments in the single rental condominium unit.
Condominium sponsors are well positioned to take advantage of this flexibility in the law because the sponsor owns all of the units once the declaration is recorded but before closing begin. And if the condominium documents are properly drafted, the sponsor can effectuate the subdivision without the need for the condominium board’s consent, thereby saving time and ensuring the change is made smoothly and quickly.
If you have any questions, or if you are interested in filing a cooperative or condominium offering plan, please call 212-935-1400.