Your lawyer should ask the co-op’s or condo’s managing agent questions as part of his/her extensive due diligence. This is typically sent in a written form and should provide your attorney with more information than just reading the financial statements and board minutes. Your lender will also require a condo or co-op building questionnaire be completed.
The building questionnaire is not a standard form. Your lawyer and lender are looking for specific information to help you completely understand your purchase. While the managing agent typically charges to fill out a questionnaire, the information gleaned is essential.
Your lawyer is trying to understand the building’s financial situation better. He/she is asking the questions, so you do not get hit with large maintenance fee/common charge increases, or special assessments down the road.
Pertinent questions include the historical maintenance fee/common charge increases. No one likes to pay higher monthly fees, but you do not want to see charges that are too low, indicating the managing agent is forgoing necessary repairs are upkeep. Typically, a modest, steady rate of increases is standard. Your lawyer should also ask about special historical assessments. If this is happening regularly it is a warning sign. The board may not be adequately managing the funds. Or is artificially trying to keep regular monthly fees low through a “back-end” increase.
Your lawyer can see the reserve fund balance from reviewing the financials, but he/she can find out more details, such as whether the board is borrowing money against the fund, which weakens your protection.
Aside from ascertaining the financial condition, your lawyer also wants to find out about the building’s lifestyle. Some are simple questions, such as the board’s policy on pets and washers/dryers. Other softball questions include inquiring about storage space and parking availability. Harder questions relate to the building’s history; such as plumbing, electrical, or mold issues, which the managing agent is more reluctant to answer.
Other potential areas to explore include the maintenance history. He/she can ask about regular maintenance and major repairs. If the board has not kept up on these, the board could impose a special assessment in the future since they may confront a significant expense.
If the building is more than six stories, it has to comply with Local Law 11. Your lawyer should certainly inquire about the status. The building could receive one of three grades: safe, safe with a repair and maintenance program (SWARMP), unsafe. You need to understand what the management company is doing if it received a SWARMP or hazardous grade, how much it will cost, and how it plans on funding the repairs.
Co-ops, in particular, are known to have strict policies against subletting. However, there are different ways to restrict it, such as a complete ban, or allowing it for a specific time frame. Even if you do now plan on subletting, you should find out the policy since you do not want to own a unit with a lot of renters since they have different incentives and it could hurt your resale value.
Your lawyer could also ask if there is an individual that owns a significant percentage of the units. This presents a risk to you since he/she could sell and place pressure on prices.
This gives you an idea about the areas your lawyer will explore. There could be additional questions, such as the unit’s square footage and a list of banks that finance purchases in the building. Your lawyer may also have other areas to ask about, depending on the circumstances.