In April 2001, the Committee of Condominiums and Cooperatives of the Real Property Section of the New York State Bar Association, the Association of the Bar of the City of New York, and the New York County Lawyers Association approved a new form of contract of sale for co-op apartments. The new contract contains many improvements and significant modifications to its predecessor, which was approved in August 1999 and is starting to be used more and more in New York.
The new form addresses changes in the laws of New York–like the repeal of the New York State Transfer Gains Tax and disclosure requirements of lead-based paint–and also provides new procedural alternatives, so that if a particular provision is not part of the transaction, it is manually stricken from the contract. The following are the key modifications to the contract:
Financing Contingency: Probably the most important revision to the contract is the modification of the financing contingency provision. Financing contingency clauses allow the purchaser to terminate the contract and receive a refund of the down payment in the event he or she cannot secure a loan to purchase the apartment. More and more, sellers are demanding that purchasers remove the condition that the contract is contingent upon the purchaser obtaining a loan. Under the prior contract, if the finance contingency was struck out, it did not prevent the purchaser from obtaining a loan. If the purchaser needs the loan money to conclude the transaction, the purchaser’s application could not be submitted to the board until a commitment letter was issued by their lender.
The new contract allows for three alternatives: (1) financing is permitted and the contract will provide the amount of the loan sought by the purchaser; (2) the contract is not contingent upon the purchaser obtaining a loan, but the purchaser can nevertheless conclude the transaction with financing; or (3) no financing is permitted at all. The new form requires the parties to delete the non-applicable provision regarding financing. The new form acknowledges that the purchasers who have deleted the financing contingency clause but require a loan can submit their application after the issuance of the commitment letter.
For transactions where the financing contingency has been deleted but the purchaser is still permitted to procure a loan, he or she should try to complete two important pre-requisites before signing the contract: find out whether the building itself has been approved by a lender, and have the apartment appraised. If the building is not pre-approved for a loan or if the appraisal comes in low, the purchaser may not get their loan and must forfeit their down payment.