HABITAT

CO-OP/CONDO BUYERS

When a Condo Board Demands an Advance Deposit

Richard Siegler in Co-op/Condo Buyers

May a condominium board require an apartment-buyer to deposit an advance equal to the unit's common charges for two years? Not unless the condominium documents specifically give the board the authority to do so.

Such was the result of the 2007 Appellate Court decision in Lisenenkov v. Kaszirer. The condo board of 304 East 65th Street in Manhattan had demanded that prospective purchaser Margarita Lisenenkov pay the board $20,310.72 as an advance against two years of future common charges. Because of this, her title company declined to insure the title to the unit, resulting in Lisenenkov seeking the return of the $84,000 down payment she'd made to defendant Anita Kaszirer.

As the judgment for Lisenenkov described, seller Kaszirer had failed to deliver a statement, required by the sales contract, that her common charges and assessments were paid and up-to-date. This was because "the condominium was concerned with buyer's financial ability to pay common charges, and [so the board] refused to give seller … a statement that maintenance and assessments were current unless buyer presently paid two years of common charges in advance." (As the condo's managing agent had stated, Lisenenkov's reported net income for 2005 was only $8,102.) Consequently, Lisenenkov's lender had declined to complete the loan transaction. Since the title did not close, Lisenenkov sought the return of her down payment.

Kaszirer, for her part, acknowledged that the contract was not conditioned on the condominium's approval, and that the condominium did not otherwise have a legal right to reject her buyer. However, she argued that Lisenenkov had either withheld important financial information or had been untruthful to the mortgage-lender. That being the case, said Kaszirer, the board did have a right to demand the advance payment, and that Lisenenkov's refusal to pay it was a default under the contract. ( Note: The condo board in this instance did not possess right of first refusal , which, if exercised, would have prevented all this since Lisenenkov would have been refused before giving a down payment.)

A Brief Moment for Legalese

Paragraph 18(c) of the contract provided: "Seller shall convey and Purchaser shall accept fee simple title to the Unit in accordance with the terms of this Contract, subject only to: (a) the permitted exceptions and (b) such other matters as (i) the Title Company or any other title insurer licensed to do business by the State of New York shall be willing, without special or additional premium, to omit as exceptions to coverage or to except with insurance against collection out of or enforcement against the Unit (ii) shall be accepted by any lender which has committed in writing to provide mortgage financing to Purchaser for the purchase of the Unit ..."

Lisenenkov argued that under this provision, the refusal of the title company to omit the exceptions from its report entitled her to decline to complete the transaction. Kaszirer maintained that Lisenenkov should have complied with the board's request for the advance, but that in any event it was Lisenenkov's failure of Lisenenkov to comply with the board's requests for financial information that made the board insist on the advance.

The court understood the board's concern with respect to a sale of a unit to a purchaser who had a limited net income. But there was nothing in the papers submitted that gave the board the right to reject any purchaser or to create a condition, such as the advance deposit, preventing the owner from concluding a sale.

When Condo Boards Attack

The court also noted, however, that while the free use/sale of one's apartment has generally been considered an advantage of condominiums over cooperatives, recent rulings had found that a condominium can adopt bylaws governing the sale and occupancy of units "so long as those provisions do not discriminate on the basis of race, creed, color or national origin" nor violate "the common-law rule against unreasonable restraints on alienation" (i.e. restraint on selling property).

In light of the conclusion that Lisenenkov had no legal obligation to pay the requested advance, and since the only reason proffered by the board for its refusal to provide Kaszirer with the requested documents was Lisenenkov's refusal to make such payment, the court concluded Lisenenkov was in no way in breach of the contract. Hence, since the board's inaction prevented Kaszirer from being able to deliver an "insurable title," Lisenenkov was entitled to the return of her down payment.

This is another example of a board seeking to exceed its authority. Here, a condominium board was trying to impose requirements on a prospective apartment purchaser because it was uncertain about the ability of such purchaser to pay his or her shares of the common charges for the building. The only problem was that the board's solution — an advance payout of two years of common charges — was beyond the board's powers.

Richard Siegler is a partner in the New York City law firm of Stroock & Stroock & Lavan.

Adapted from Habitat April 2007. For the complete article and more, join our Archive >>

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