The deadly collapse of the Champlain Towers South condominium in Florida has put a spotlight on the need for due diligence by co-op and condo buyers. Experts agree that buyers should not rely on their professionals to ascertain the fiscal and physical health of a property but should roll up their sleeves and get involved in looking beyond the walls of the apartment they’re hoping to buy. Here are some of the most critical things to investigate:
Minutes of board meetings and annual meetings. “A buyer’s lawyer should look at minutes going back several years,” says Ingrid Manevitz, a partner at the law firm Seyfarth Shaw. The minutes will probably reveal if there have been discussions about major capital projects, structural problems, disputes among neighbors, litigation and, possibly, problems with the unit the buyer is hoping to purchase.
Reserve fund. The size of this rainy-day fund will usually be revealed in the financial statements. “You want a strong reserve fund,” Manevitz says, adding that even a robust reserve fund may not be enough to cover looming expenses. Champlain Towers South reportedly had $700,000 in reserves, while the building needed $15 million in repairs.
Bylaws. Unit-owners at Champlain Towers South balked at paying assessments that would have been needed to fix structural problems, which led some board members to resign in frustration. “You can’t fault the board,” Manevitz says. “The lesson to learn here is that some bylaws require the approval of a high percentage of unit-owners – sometimes two-thirds – to make repairs over a certain number of dollars. Condos, especially, should revisit those provisions in their governing documents and consider amending them if they’re too restrictive in permitting necessary structural work.”
Buyer, beware – and be busy. “I wouldn’t put all of the due diligence on the attorney,” Manevitz says. “The purchaser should get involved, too. There’s a lot of free information available online.” On New York City’s Department of Buildings website, for instance, it’s possible for anyone to learn about outstanding violations at a building. Other searches might reveal construction defects in a new building, litigation by unit-owners against the developer and the developer’s track record on other projects.