Negotiating the contract of sale for the multi family dwelling with rent regulated tenants 1

Negotiating the Contract of Negotiating the Contract of Sale for the Multi-Family Sale for the Multi-Family

Dwelling with Rent Regulated Dwelling with Rent Regulated TenantsTenants

Presented by:Presented by:Adam Leitman BaileyAdam Leitman Bailey

Adam Leitman Bailey, P.C. Adam Leitman Bailey, P.C. www.alblawfirm.com www.alblawfirm.com (212) 825-0365(212) 825-0365 11

IntroductionIntroduction

Recent case law demonstrates that buyers of residential Recent case law demonstrates that buyers of residential property with rent regulated units have been blindsided by property with rent regulated units have been blindsided by financial risks arising from their attorneys’ ignorance of rent financial risks arising from their attorneys’ ignorance of rent regulatory laws. regulatory laws.

Although many of these cases go unreported, the recent Although many of these cases go unreported, the recent decision of decision of Newport Partners v. DHCRNewport Partners v. DHCR[1],[1], is typical of the is typical of the hazards uninformed transactional attorneys can create for hazards uninformed transactional attorneys can create for their clients. their clients. – In cases like In cases like NewportNewport, new landlords face hundreds of , new landlords face hundreds of

thousands of dollars in overcharge damages in naïve reliance on thousands of dollars in overcharge damages in naïve reliance on the paperwork of their predecessors. the paperwork of their predecessors.

[1] 15 Misc3d 1125(A) (Sup NY Cahn).[1] 15 Misc3d 1125(A) (Sup NY Cahn).


Rent RegulationsRent Regulations

Besides restricting a buyer’s ability to evict a tenant, rent Besides restricting a buyer’s ability to evict a tenant, rent regulation also severely limits the rental income a property regulation also severely limits the rental income a property owner may collect. owner may collect.

There are over a million rent regulated apartments in the City There are over a million rent regulated apartments in the City of New York and another seventy-five thousand scattered of New York and another seventy-five thousand scattered throughout portions of Nassau, Westchester and Rockland throughout portions of Nassau, Westchester and Rockland counties and certain upstate cities.[3] counties and certain upstate cities.[3]

[3] http://www.rsanyc.com[3] http://www.rsanyc.com


Even in places where there is no rent control or Even in places where there is no rent control or stabilization, other rent regulatory schemes like Section stabilization, other rent regulatory schemes like Section 8 make understanding New York’s complex residential 8 make understanding New York’s complex residential rent laws crucial when advising a client contemplating rent laws crucial when advising a client contemplating the purchase of a residential building. the purchase of a residential building.

This is true even if the transactional attorney’s duty is This is true even if the transactional attorney’s duty is completed by answering the first question in these deals completed by answering the first question in these deals by determining the building is unregulated.by determining the building is unregulated.


In order to increase a building’s income In order to increase a building’s income and to prevent potentially financially and to prevent potentially financially devastating circumstances, the careful devastating circumstances, the careful negotiation of the contract of sale is negotiation of the contract of sale is essential.essential.


Rent Stabilized UnitsRent Stabilized Units

Rent stabilized units comprise the largest group of regulated Rent stabilized units comprise the largest group of regulated tenancies. tenancies. – To qualify, a building must contain six or more units. To qualify, a building must contain six or more units.

If it is a New York City building, it must have been built If it is a New York City building, it must have been built before December 31, 1973. before December 31, 1973. – The operative date is January 1, 1974 everywhere else rent The operative date is January 1, 1974 everywhere else rent

stabilization applies.[4] stabilization applies.[4]

[4][4] New York City enacted the Rent Stabilization Law in 1969. In 1974, the State New York City enacted the Rent Stabilization Law in 1969. In 1974, the State enacted the substantially similar Emergency Tenant Protection Act of 1974. It enacted the substantially similar Emergency Tenant Protection Act of 1974. It extends rent stabilization to additional buildings in New York City, and rent extends rent stabilization to additional buildings in New York City, and rent stabilization-like regulations in suburban counties.stabilization-like regulations in suburban counties.


Rent-stabilized tenants are required to have written Rent-stabilized tenants are required to have written leases and, subject to delineated exceptions, landlords leases and, subject to delineated exceptions, landlords are perpetually required to offer renewal leases. are perpetually required to offer renewal leases.

Units may be except from regulation when:Units may be except from regulation when:– Monthly rents reach $2,000 per month and the Monthly rents reach $2,000 per month and the

apartment becomes vacant.apartment becomes vacant.– Monthly rents reach $2,000 per month and Tenant’s Monthly rents reach $2,000 per month and Tenant’s

annual household income exceeds $175,000 for two annual household income exceeds $175,000 for two consecutive years (See the Rent Regulation Reform consecutive years (See the Rent Regulation Reform Act of 1997).Act of 1997).


Rent ControlRent ControlRent Control, enacted in response to the housing crisis Rent Control, enacted in response to the housing crisis following World War II, generally applies to residential buildings following World War II, generally applies to residential buildings constructed prior to February, 1947 in municipalities that have constructed prior to February, 1947 in municipalities that have not declared an end to the emergency. not declared an end to the emergency.

For an apartment to be subject to rent control today, the tenant For an apartment to be subject to rent control today, the tenant must have been continuously residing in the apartment since must have been continuously residing in the apartment since before July 1, 1971.[5] before July 1, 1971.[5] – In addition, any immediate family member living with the tenant In addition, any immediate family member living with the tenant

continuously for at least two years, may succeed to rent-control continuously for at least two years, may succeed to rent-control status. status.

– Rent-controlled are not required to maintain leases.[6] Rent-controlled are not required to maintain leases.[6]

[5] Prior to 1983, even tenancies that began after July 1, 1971 could become rent controlled if the [5] Prior to 1983, even tenancies that began after July 1, 1971 could become rent controlled if the landlord was guilty of a serious breach of the rent stabilization rules.landlord was guilty of a serious breach of the rent stabilization rules.

[6] The advantage to landlords in their having a lease is the usual presence of a jury waiver clause. [6] The advantage to landlords in their having a lease is the usual presence of a jury waiver clause. Attorneys’ fees clauses may be either an advantage or a disadvantage since RPL §234 makes them Attorneys’ fees clauses may be either an advantage or a disadvantage since RPL §234 makes them winner take all in litigation over lease violations.winner take all in litigation over lease violations.


Once a rent-controlled occupant leaves the apartment Once a rent-controlled occupant leaves the apartment vacant, the next tenancy may be either free-market for vacant, the next tenancy may be either free-market for legal rents above $2,000 or rent stabilized below $2,000. legal rents above $2,000 or rent stabilized below $2,000.

Landlords may elect to take on the burdens of rent Landlords may elect to take on the burdens of rent stabilization by taking advantage of the “J-51” and “421-stabilization by taking advantage of the “J-51” and “421-a” tax abatement programs. a” tax abatement programs. – While these are supposed to place the buildings While these are supposed to place the buildings temporarily temporarily in in

rent stabilization, if the leases do not contain language warning rent stabilization, if the leases do not contain language warning the tenant that rent stabilization is coming to an end, the the tenant that rent stabilization is coming to an end, the regulatory coverage is essentially perpetual. regulatory coverage is essentially perpetual.

– Thus, the purchaser’s attorney Thus, the purchaser’s attorney must must examine all of the leases in examine all of the leases in the building to make sure that they contain the qualifying the building to make sure that they contain the qualifying language.language.


For the smallest buildings and especially those dwellings For the smallest buildings and especially those dwellings being converted to personal use by the buyer, the goal being converted to personal use by the buyer, the goal should be to secure a vacant building at closing. should be to secure a vacant building at closing.

A number of building purchasers have attempted eviction A number of building purchasers have attempted eviction proceedings only to find that the building contains some proceedings only to find that the building contains some essentially unevictable tenants.essentially unevictable tenants.


To avoid this financial nightmare, the contract of sale To avoid this financial nightmare, the contract of sale should include a provision postponing the closing until should include a provision postponing the closing until vacancy and including daily penalties for each day the vacancy and including daily penalties for each day the building could not be delivered vacant, allowing the building could not be delivered vacant, allowing the purchaser rescission of the contract beyond some stated purchaser rescission of the contract beyond some stated date. date.

Because possession constitutes constructive and inquiry Because possession constitutes constructive and inquiry notice of a tenancy,[7] a buyer should be knocking on notice of a tenancy,[7] a buyer should be knocking on every door to assure that supposedly vacant apartments every door to assure that supposedly vacant apartments really are unoccupied.really are unoccupied.

[7] [7] Raines v. Moran,Raines v. Moran, 57 NYS2d 800 (1945); 57 NYS2d 800 (1945); In Re Euro-Swiss International Corp v. In Re Euro-Swiss International Corp v. Trimble, Marshal and Goldman,Trimble, Marshal and Goldman, 33 BR 872 (SDNY 1983). 33 BR 872 (SDNY 1983).


Since entirely vacant buildings are so rare, usually your Since entirely vacant buildings are so rare, usually your client will be inheriting tenancies. client will be inheriting tenancies.

For tenanted buildings, the contract of sale should For tenanted buildings, the contract of sale should include due diligence provisions that will allow one to include due diligence provisions that will allow one to determine the building’s potential profits or losses and determine the building’s potential profits or losses and ensure that a closing does not occur until these ensure that a closing does not occur until these problems are resolved. problems are resolved.


Contract of SaleContract of Sale

The contact of sale should list:The contact of sale should list:

a.a. Name is each tenant in building;Name is each tenant in building;b.b. Date of all leases and termination dates;Date of all leases and termination dates;c.c. Verification of income stream (cancelled checks, financial Verification of income stream (cancelled checks, financial

statements, tax returns);statements, tax returns);d.d. Dates of amendments to leases;Dates of amendments to leases;e.e. Services provided to rent-regulated tenants;Services provided to rent-regulated tenants;f.f. Whether tenant is a free-market tenant, statutory, or other Whether tenant is a free-market tenant, statutory, or other

recognized protected or regulated class such as rent-stabilized, recognized protected or regulated class such as rent-stabilized, rent-controlled, interim multiple dwelling, SRO (Single Room rent-controlled, interim multiple dwelling, SRO (Single Room Occupancy);Occupancy);

g.g. All registrations with all government agencies, including past and All registrations with all government agencies, including past and current registrations filed during the past four years with the current registrations filed during the past four years with the Division of Housing and Community Renewal (DHCR);Division of Housing and Community Renewal (DHCR);


Contract of Sale (con’t)Contract of Sale (con’t)

The contact of sale should also list:The contact of sale should also list:

h.h. List of all current and past litigation, copies of all settlement List of all current and past litigation, copies of all settlement agreements and other orders and agreements affecting the agreements and other orders and agreements affecting the property;property;

i.i. List of any inspection reports from any governmental agency;List of any inspection reports from any governmental agency;j.j. Certificate of Occupancy and Multiple Dwelling Registration;Certificate of Occupancy and Multiple Dwelling Registration;k.k. The status of all of the building’s units;The status of all of the building’s units;l.l. The rents being collected;The rents being collected;m.m. Any arrears owed;Any arrears owed;n.n. Representations that no tenant is entitled to rental concessions Representations that no tenant is entitled to rental concessions

or abatements; andor abatements; ando.o. Indications of the status of any proceedings pending involving Indications of the status of any proceedings pending involving

any existing tenant.any existing tenant.


Provisions or Representations that should be Provisions or Representations that should be Negotiated into the Contract of SaleNegotiated into the Contract of Sale

Removal of Violations;Removal of Violations;

Obtain right to enter into any new leases pre-Obtain right to enter into any new leases pre-closing;closing;

Restrict seller from entering into any lease post-Restrict seller from entering into any lease post-contract and prior to closing to avoid “sweetheart contract and prior to closing to avoid “sweetheart deals.”deals.”


Methods to Remove Rent Regulated Methods to Remove Rent Regulated TenantsTenants

Demolition of BuildingDemolition of Building

Owner’s Use of BuildingOwner’s Use of Building

Not For Profit UseNot For Profit Use


Be Alert for Illegal UsesBe Alert for Illegal Uses

Nonprimary ResidenceNonprimary Residence

Illegal SubletIllegal Sublet

Chronic NonpaymentChronic Nonpayment

NuisanceNuisance

Roomate LawRoomate Law

Adam Leitman Bailey, P.C. www.alblawfirm.com (212) 825-0365Adam Leitman Bailey, P.C. www.alblawfirm.com (212) 825-0365 1717

To avoid the seller from granting favorite tenants To avoid the seller from granting favorite tenants “sweetheart” leases, the contract of sale should restrict “sweetheart” leases, the contract of sale should restrict the seller from entering into any leases post-contract the seller from entering into any leases post-contract without the buyer’s permission. without the buyer’s permission.

– However, the buyer will have to use that power intelligently since However, the buyer will have to use that power intelligently since the buyer may want the seller to renew a lease to quicken the the buyer may want the seller to renew a lease to quicken the time to regain possession of a unit for an owner’s personal use time to regain possession of a unit for an owner’s personal use or for the demolition of a building. or for the demolition of a building.

– Any renewal should be prepared or presented to the buyer for Any renewal should be prepared or presented to the buyer for approval before signature. approval before signature.


The contract must not only require that the seller The contract must not only require that the seller indemnify the buyer for misrepresentations of the status indemnify the buyer for misrepresentations of the status of particular apartments, but must require appropriate of particular apartments, but must require appropriate proof that each vacant unit was the subject of a legal proof that each vacant unit was the subject of a legal eviction or voluntary surrender. eviction or voluntary surrender. – Similarly, the seller must be held to indemnify the buyer for any Similarly, the seller must be held to indemnify the buyer for any

judgments or awards from overcharge claims or illegal evictions.judgments or awards from overcharge claims or illegal evictions.

To ensure that the rent listed in the lease matches the To ensure that the rent listed in the lease matches the rent paid to the landlord, the buyer should demand a rent paid to the landlord, the buyer should demand a copy of all existing and terminated leases of all occupied copy of all existing and terminated leases of all occupied units as well as recent verification of rent payments such units as well as recent verification of rent payments such as copies of checks and tax returns. as copies of checks and tax returns.


To avoid losing income, the buyer’s attorney should also To avoid losing income, the buyer’s attorney should also collect or require at closing:collect or require at closing:

– A list of security deposits and a provision that provides for A list of security deposits and a provision that provides for transfer of deposits at closing;transfer of deposits at closing;

– Copies of existing and past litigation including any orders from Copies of existing and past litigation including any orders from any governmental agency relating to the property; andany governmental agency relating to the property; and

– Documentation transferring any existing service contracts. Documentation transferring any existing service contracts.


No contract should be signed without a permission letter No contract should be signed without a permission letter signed by a seller permitting the buyer to review a copy signed by a seller permitting the buyer to review a copy of the building’s records at the State Division of Housing of the building’s records at the State Division of Housing and Community Renewal (“DHCR”). and Community Renewal (“DHCR”).

Upon presentment, DHCR will provide a registration Upon presentment, DHCR will provide a registration statement listing every registered tenant since 1984 as statement listing every registered tenant since 1984 as well as every tenant’s registered rent for each year. well as every tenant’s registered rent for each year.

More detailed DHCR records will list any pertinent More detailed DHCR records will list any pertinent orders, such as findings, judgments, or orders reducing a orders, such as findings, judgments, or orders reducing a tenant’s rent for reduction of services. tenant’s rent for reduction of services.


Review Leases and Comparing to DHCR Review Leases and Comparing to DHCR RegistrationsRegistrations

Rent OverchargesRent Overcharges– Determine if there are any rent overcharge complaints against Determine if there are any rent overcharge complaints against

the owner.the owner.– ““Carryover liability for rent overcharges had been judicially Carryover liability for rent overcharges had been judicially

imposed before the promulgation. The rationale for carryover imposed before the promulgation. The rationale for carryover liability was derived from the requirement of section 42 (A) of the liability was derived from the requirement of section 42 (A) of the former Rent Stabilization Code which mandated that landlords former Rent Stabilization Code which mandated that landlords keep and preserve sufficient records to determine the legal rent keep and preserve sufficient records to determine the legal rent at all times. Hence, a successor landlord would always be able at all times. Hence, a successor landlord would always be able to ascertain whether the previous owners had been guilty of to ascertain whether the previous owners had been guilty of overcharges and protect itself accordingly.[1]…”overcharges and protect itself accordingly.[1]…”

[1] Matter of Germaine Gaines v. New York State Division of Housing and Community Renewal; Court [1] Matter of Germaine Gaines v. New York State Division of Housing and Community Renewal; Court of Appeals of New Yorkof Appeals of New York


– Except when a purchase derives from a judicial sale, a new Except when a purchase derives from a judicial sale, a new owner steps into the shoes of the previous owner in regards to owner steps into the shoes of the previous owner in regards to rent overcharge.rent overcharge.

– ““Thus, the regulatory language involved here does not literally Thus, the regulatory language involved here does not literally limit the exemption to the purchaser at the judicial sale. limit the exemption to the purchaser at the judicial sale. Specifically, the condition precedent for the application of the Specifically, the condition precedent for the application of the exemption is that “no records sufficient to establish the legal exemption is that “no records sufficient to establish the legal regulated rent were provided at [the] judicial sale.” (9 NYCRR regulated rent were provided at [the] judicial sale.” (9 NYCRR 2526.1 [f] [2] [emphasis supplied]) Once met, the regulation 2526.1 [f] [2] [emphasis supplied]) Once met, the regulation grants the exemption [***252] [**1346] not merely to the grants the exemption [***252] [**1346] not merely to the purchaser “at” the sale, but to “a current owner who purchases purchaser “at” the sale, but to “a current owner who purchases upon such judicial sale.” (id. [emphasis supplied])upon such judicial sale.” (id. [emphasis supplied])


– ……Employment of the phrase “at the judicial sale” with respect to Employment of the phrase “at the judicial sale” with respect to the unavailability of rent records condition precedent, and [*551] the unavailability of rent records condition precedent, and [*551] the resultant exemption for a purchaser “upon” such sale is the resultant exemption for a purchaser “upon” such sale is meaningful and apparently intended. “Upon” has as its primary meaningful and apparently intended. “Upon” has as its primary meaning, and is synonymous with, “on.” Among the meanings of meaning, and is synonymous with, “on.” Among the meanings of “on” are: “used as a function word to indicate contiguity or “on” are: “used as a function word to indicate contiguity or dependence; esp. … source or support or basis on which dependence; esp. … source or support or basis on which something (as an action…) turns or rests,” and “used as a something (as an action…) turns or rests,” and “used as a function word to indicate position with regard to place, direction, function word to indicate position with regard to place, direction, or time; esp. … occurrence at the same time as or following as a or time; esp. … occurrence at the same time as or following as a result of something”[1]…result of something”[1]…

[1] see, Webster’s Third New International Dictioanry [unabridged], 1981.


– …Under the foregoing common meanings, the exemption to a current owner upon a judicially ordered sale would apply to a successor to the purchaser at that sale, in that the “source” of its purchase was the judicial sale, and its purchase was “following or as a result of” the judicial sale…

– …It follows from the foregoing that DHCR’s extension of the judicial sale exemption to a successor purchaser who did not have rental records sufficient to establish the legal regulated rent is both reasonable and consistent with the underlying purposes of the regulation and, thus, should have been upheld. Petitioner’s alternative arguments for affirmance are either unpreserved or without merit.”


Gathering & Comparing InformationGathering & Comparing InformationAs As Newport Partners, supra, Newport Partners, supra, teaches, however, reliance teaches, however, reliance on DHCR reports is not enough. They should be on DHCR reports is not enough. They should be compared to the leases provided by the seller, all compared to the leases provided by the seller, all renewal leases, and the deal sheet. Such a comparison renewal leases, and the deal sheet. Such a comparison will assist:will assist:

– In determining whether the tenants have been charged the In determining whether the tenants have been charged the correct or legal rent;correct or legal rent;

– In verifying the legality of the apartments listed as deregulated or In verifying the legality of the apartments listed as deregulated or free market apartments;free market apartments;

– In obtaining data on any tenants without leases; andIn obtaining data on any tenants without leases; and

– In discovering any illegal occupancies.In discovering any illegal occupancies.


Furthermore, such an inquiry will assist in revealing any Furthermore, such an inquiry will assist in revealing any potential overcharge claims which could result in treble potential overcharge claims which could result in treble damages against the buyer and provide the ability to damages against the buyer and provide the ability to understand any inconsistencies or questions regarding understand any inconsistencies or questions regarding the data.the data.

While it is essential to put appropriate clauses in the While it is essential to put appropriate clauses in the contract of sale to protect the purchaser, no buyer’s contract of sale to protect the purchaser, no buyer’s counsel should place too much reliance upon them. counsel should place too much reliance upon them.

– The shrewd practitioner will not believe seller assurances of The shrewd practitioner will not believe seller assurances of

cooperation after closing, assuming instead that once the seller cooperation after closing, assuming instead that once the seller has the proceeds of the sale in hand, there will no longer be any has the proceeds of the sale in hand, there will no longer be any seller participation in building affairs. seller participation in building affairs.


Thus, it may be necessary to escrow part of the Thus, it may be necessary to escrow part of the proceeds to secure against known pending problems in proceeds to secure against known pending problems in the building.the building.

Similarly, the purchaser’s attorney cannot believe Similarly, the purchaser’s attorney cannot believe representations of deregulation. representations of deregulation.

– Instead, the buyer should attempt to obtain proof that none of Instead, the buyer should attempt to obtain proof that none of the existing tenancies are rent regulated, that the building was the existing tenancies are rent regulated, that the building was never a six-family building before 1974, and that it was never never a six-family building before 1974, and that it was never enrolled in any program subjecting it to voluntary regulation.enrolled in any program subjecting it to voluntary regulation.


All buildings built after 1938 and buildings with All buildings built after 1938 and buildings with completed alterations pursuant to a building permit are completed alterations pursuant to a building permit are required to have certificates of occupancy. required to have certificates of occupancy.

The buyer’s counsel must obtain a copy of the building’s The buyer’s counsel must obtain a copy of the building’s certificate to ensure that all of the units are being used certificate to ensure that all of the units are being used only in their legally permitted ways. only in their legally permitted ways.

The extent to which a buyer will assume violations and The extent to which a buyer will assume violations and liens must be negotiated. liens must be negotiated.


One must also search the records at the Department of One must also search the records at the Department of Buildings[8] and, in the City of New York, at the Buildings[8] and, in the City of New York, at the Environmental Control Board and the Department of Environmental Control Board and the Department of

Housing Preservation and Development.[9]Housing Preservation and Development.[9]

While it is not essential that all these violations be While it is not essential that all these violations be cleared before title passes, appropriate arrangements for cleared before title passes, appropriate arrangements for their financial consequences are vital. their financial consequences are vital.

While there is no substitute for thorough physical While there is no substitute for thorough physical inspections of the property, these records will often inspections of the property, these records will often reveal illegal occupancies, violating the certificate of reveal illegal occupancies, violating the certificate of occupancy.occupancy.

[8] http://www.nyc.gov/html/dob/html/home/home.shtml[8] http://www.nyc.gov/html/dob/html/home/home.shtml

[9] http://167.153.4.71/hpdonline/provide_address.aspx[9] http://167.153.4.71/hpdonline/provide_address.aspx


In order for a Single Room Occupancy In order for a Single Room Occupancy (SRO) building to undergo structural (SRO) building to undergo structural repairs and renovations, it is necessary to repairs and renovations, it is necessary to obtain a Certificate of No Harassment, obtain a Certificate of No Harassment, setting forth that there have been no setting forth that there have been no efforts by the prior owners or the seller to efforts by the prior owners or the seller to harass the tenants out of the building. harass the tenants out of the building.


Multiple Dwelling Law Section Multiple Dwelling Law Section 281: Interim Multiple Dwelling281: Interim Multiple DwellingExcept as provided in subdivision two of this section, the term Except as provided in subdivision two of this section, the term "interim multiple dwelling" means any building or structure or "interim multiple dwelling" means any building or structure or portion thereof located in a city of more than one million portion thereof located in a city of more than one million persons which persons which

i.i. at any time was occupied for manufacturing, commercial, at any time was occupied for manufacturing, commercial, or warehouse purposes; and or warehouse purposes; and

ii.ii. lacks a certificate of compliance or occupancy pursuant to lacks a certificate of compliance or occupancy pursuant to section three hundred one of this chapter; and section three hundred one of this chapter; and

iii.iii. on December first, nineteen hundred eighty-one was on December first, nineteen hundred eighty-one was occupied for residential purposes since April first, occupied for residential purposes since April first, nineteen hundred eighty as the residence or home of any nineteen hundred eighty as the residence or home of any three or more families living independently of one three or more families living independently of one another.another.


Similarly, Interim Multiple Dwellings[10] have their own Similarly, Interim Multiple Dwellings[10] have their own special issues. If the building being purchased was special issues. If the building being purchased was previously used as a factory or warehouse, particularly if previously used as a factory or warehouse, particularly if it has cast iron architecture, if it is being used it has cast iron architecture, if it is being used residentially, one must check for any proceedings residentially, one must check for any proceedings pending before the Loft Board. pending before the Loft Board.

In a minority of these buildings, residential occupancy is In a minority of these buildings, residential occupancy is limited to “artists in residence.” To be a qualifying artist, limited to “artists in residence.” To be a qualifying artist, the tenant must be certified by the New York City the tenant must be certified by the New York City Department of Cultural Affairs. Department of Cultural Affairs.

The failure of such certification leads to the eviction of The failure of such certification leads to the eviction of that tenant, but leaves the landlord only able to rent to that tenant, but leaves the landlord only able to rent to one who really is so certified.one who really is so certified.

[10] Commonly referred to as “lofts.”[10] Commonly referred to as “lofts.”


Since many residential buildings also contain commercial Since many residential buildings also contain commercial units, the leases for any such units should be thoroughly units, the leases for any such units should be thoroughly reviewed with a search for options to renew, rights of first reviewed with a search for options to renew, rights of first refusal and any services or repairs the new owner will be refusal and any services or repairs the new owner will be required to provide. required to provide.

Most commercial leases require tenants to sign Most commercial leases require tenants to sign estoppels letters confirming the tenancy and setting forth estoppels letters confirming the tenancy and setting forth that the tenant has no claim against the landlord. that the tenant has no claim against the landlord.

The sales contract should require the seller to have the The sales contract should require the seller to have the tenants complete these letters.tenants complete these letters.


It is a complicated task to purchase a building with It is a complicated task to purchase a building with residential tenancies. residential tenancies.

However, with careful physical and documentary However, with careful physical and documentary investigation, most of the potential traps for an unwary investigation, most of the potential traps for an unwary buyer can be revealed. buyer can be revealed.

The real crux is for the purchaser’s attorney to commit The real crux is for the purchaser’s attorney to commit sufficient time and resources to take all the necessary sufficient time and resources to take all the necessary steps to maximize the client’s profits and minimize the steps to maximize the client’s profits and minimize the client’s risks. client’s risks.

There is no formula for doing due diligence in these There is no formula for doing due diligence in these purchases. This article merely presents the starting purchases. This article merely presents the starting place. The full report will have to note the circumstances place. The full report will have to note the circumstances peculiar to each unique piece of property. peculiar to each unique piece of property.


Courts will enforce the provisions in the contract of sale.– When a contract for the sale of real property contains a

clause specifically setting forth the remedies available to the buyer if the seller is unable to satisfy a stated condition, fundamental rules of contract construction and enforcement require that a court limit the buyer to the remedies for which it provided in the sale contract.


Due Diligence

1. Financial and Paper Due Diligence

2. Structural Integrity of Buildinga. An engineer should determine the structural

integrity of the building.i. Any major repair cost will significantly and

adversely affect the actual price of the dwelling.

ii. The inspection could result in a reduction or recognition of the purchase price to include the replacement or repair costs of and substandard items.


Searching for Judgments and Other Searching for Judgments and Other Liens: Where the Title Report EndsLiens: Where the Title Report Ends

1.1. LitigationLitigation Supreme CourtSupreme Court Housing CourtHousing Court Civil CourtCivil Court Federal CourtFederal Court Bankruptcy CourtBankruptcy Court

2.2. LiabilityLiability Contract determines liability for violations between contract and Contract determines liability for violations between contract and

closing.closing. Update violation report day of closing.Update violation report day of closing.

3.3. Certificate of OccupancyCertificate of Occupancy

4.4. ZoningZoning


Commercial StorefrontsCommercial Storefronts1.1. Obtain LeasesObtain Leases

2.2. Estoppel LetterEstoppel Lettera.a. Estoppel letters should identify the lease and indicate all amendments Estoppel letters should identify the lease and indicate all amendments

and modifications thereto.and modifications thereto.

b.b. The estoppel letter should run to the benefit of the seller, the purchaser The estoppel letter should run to the benefit of the seller, the purchaser and purchaser’s assigns.and purchaser’s assigns.

3.3. Check commercial lease for:Check commercial lease for:a.a. Rental, lease basics;Rental, lease basics;

b.b. Right of expansion;Right of expansion;

c.c. Right of first refusalRight of first refusali.i. Buyer liable for actual notice of right of first refusal when tenant in Buyer liable for actual notice of right of first refusal when tenant in

possession.possession.

d.d. Right of renewal;Right of renewal;

e.e. If seller cannot obtain all or most estoppel letters, buyer may agree to If seller cannot obtain all or most estoppel letters, buyer may agree to seller obtaining estoppel letters from a certain percentage of or only seller obtaining estoppel letters from a certain percentage of or only from certain tenants.from certain tenants.

f.f. Buyer may also accept a seller estoppel.Buyer may also accept a seller estoppel.


Grounds for Evicting Regulated Grounds for Evicting Regulated Tenants:Tenants:

Non-Primary ResidenceNon-Primary Residence

Chronic Non-PaymentChronic Non-Payment

Owner OccupancyOwner Occupancy

Illegal SublettingIllegal Subletting

NuisanceNuisance

Roommate LawRoommate Law

DemolitionDemolition


Amending Title Report – Rights Amending Title Report – Rights of Tenants as Tenants Onlyof Tenants as Tenants Only

Title report – standard printed exceptions is the Title report – standard printed exceptions is the “rights of tenants.”“rights of tenants.”

Modify report so title company omits or modifies Modify report so title company omits or modifies this exception to read “rights of tenants as this exception to read “rights of tenants as tenants only” based on any affidavit and or an tenants only” based on any affidavit and or an indemnity of the seller that none of the tenants indemnity of the seller that none of the tenants have any right to acquire the property.have any right to acquire the property.


Adam Leitman Bailey, P.C. Adam Leitman Bailey, P.C. www.alblawfirm.com www.alblawfirm.com (212) 825-0365(212) 825-0365

DUE DILIGENCE REPORTDUE DILIGENCE REPORT FORFOR

XXXXXXXXXXXXXXXXXXXXXXXX

REGARDING THE PROPERTIES KNOWN AS:REGARDING THE PROPERTIES KNOWN AS:

XXXXX STREETXXXXX STREET

XXXXXX AVENUEXXXXXX AVENUE

NEW YORK, NEW YORK XXXXXNEW YORK, NEW YORK XXXXX

PREPARED BY:PREPARED BY:

ADAM LEITMAN BAILEY, P.C.ADAM LEITMAN BAILEY, P.C.

120 BROADWAY, 17120 BROADWAY, 17THTH FLOOR FLOOR

NEW YORK, NEW YORK 10004NEW YORK, NEW YORK 10004

(212) 825-0365(212) 825-0365

[email protected]@alblawfirm.com

www.alblawfirm.comwww.alblawfirm.com

_________ ___, 200__________ ___, 200_

4242


INTRODUCTION INTRODUCTION In order to assist XXXXX XXXXX, LLC., we have researched In order to assist XXXXX XXXXX, LLC., we have researched

information from governmental agencies regarding the properties information from governmental agencies regarding the properties known as XXX XXXX Street and XXX XXXXX Avenue, New York, known as XXX XXXX Street and XXX XXXXX Avenue, New York, NY 1XXXX, and analyzed documents of record on file with the NY 1XXXX, and analyzed documents of record on file with the following entities:following entities:– New York State Division of Housing and Community Renewal New York State Division of Housing and Community Renewal

(DHCR)(DHCR)– Department of Housing Preservation and Development (DHPD)Department of Housing Preservation and Development (DHPD)– New York City Department of Finance New York City Department of Finance – New York City Department of Buildings New York City Department of Buildings

Additionally, we have performed searches at Housing, Civil and Additionally, we have performed searches at Housing, Civil and Supreme Court. Investigations by Adam Leitman Bailey, P.C. have Supreme Court. Investigations by Adam Leitman Bailey, P.C. have allowed us to determine the following results. allowed us to determine the following results.

4343


Department of Housing Preservation and Department of Housing Preservation and Development (DHPD)Development (DHPD)

XXX XXXXX STREETXXX XXXXX STREET

Registration and Violations with DHPDRegistration and Violations with DHPD

According to the attached documents, there is a current According to the attached documents, there is a current registration on file for the year 2005 with the Department of registration on file for the year 2005 with the Department of Housing Preservation and Development (DHPD). Said Housing Preservation and Development (DHPD). Said registration demonstrates that XXX XXXXX Street has XX registration demonstrates that XXX XXXXX Street has XX stories with XX units (all class A apartments). Additionally, stories with XX units (all class A apartments). Additionally, there are no open violations for said property. there are no open violations for said property. (See DHPD (See DHPD Building Registration Summary, annexed hereto as Building Registration Summary, annexed hereto as Exhibit “A”). Exhibit “A”).

4444


XXX XXXXXX AVENUEXXX XXXXXX AVENUE

Registration and Violations with DHPDRegistration and Violations with DHPD

As regards to XXX XXXXX Avenue, there is also a current As regards to XXX XXXXX Avenue, there is also a current registration on file for the year 2005 with the DHPD. Said registration on file for the year 2005 with the DHPD. Said registration demonstrates that XXX XXXXX Avenue has XXX stories registration demonstrates that XXX XXXXX Avenue has XXX stories with XXX units (all class A apartments). with XXX units (all class A apartments). (See DHPD Building (See DHPD Building Registration Summary, annexed hereto as Exhibit “B”). Registration Summary, annexed hereto as Exhibit “B”).

There are four open violations associated with said premises. There are four open violations associated with said premises. (See (See

DHPD Open Violations report, annexed hereto as Exhibit “C”). DHPD Open Violations report, annexed hereto as Exhibit “C”). As shown in the chart below, the violations consist of 2 class A As shown in the chart below, the violations consist of 2 class A violations, 1 class B violation, and 1 class C violation. You may violations, 1 class B violation, and 1 class C violation. You may want to receive a credit for the violations or at least make sure that want to receive a credit for the violations or at least make sure that they are corrected by the closing date.they are corrected by the closing date.

4545


AptStory

Reported Date,nov ISSUED

Date

Hzrd Class Order noItem no

Violation ID Violation Description

StatusStatus Date

Owner Certification

Dates:1st Lead,2nd Lead

- - 1996/09/18 1997/01/21

A 556 xxxxxxx Xxxx xxxxxx xxxxxx xxxxx xxxx xxxx xxx

xxx xxx xxx xxx xxx xxxx x xxx

Xxxxx xxxx xxxx xxxxx

NOV SENT 1997/01/21

1997/05/16 -

- - 1991/01/03 1991/01/22

C 671 xxxxxxx xxxxx xxxxx xxxxx xxxx

xxxxxxxxxx xx xxxxx x xxxx

Xxxxxxxxx xxxx xxxx xxxxx

xxxxx xxxx xxxx xxxxx xxxx

xxxxxx xxxxx.

NOV SENT 1991/01/22

1991/02/13 -

- - 1985/12/22 1986/01/13

B 510 xxxxxxx xxxxx xxxxxx xxxxxxxxx xxxx

xxxx xxxx xxxxxx xxxxxx xxxxx xxxxx xxxxx xxxxx

xxxxxx.

1 NO ACCESS 1989/12/02

1986/03/09 -

- - 1984/04/05 1984/04/23

A 510 xxxxxxx xxxxxx xxxxx xxx xxx xxx xxxx

xxxx xxxx xxxXxxxx xxx xxxx

xxxxxxxxXxxxxxxx xxxxxxxx

NOT COMPLIED 1991/01/03

4646


NYC Department of Buildings (DOB)NYC Department of Buildings (DOB)

XXX XXXXX STREETXXX XXXXX STREET

Registration, Violations and Jobs with Department of BuildingsRegistration, Violations and Jobs with Department of Buildings According to the attached documents, said property is on file with the Department of According to the attached documents, said property is on file with the Department of

Buildings as having a Department of Finance Occupancy Code of “D9-elevator Buildings as having a Department of Finance Occupancy Code of “D9-elevator apartment”. This designation is used to classify the building’s tax status. It is not apartment”. This designation is used to classify the building’s tax status. It is not SRO restricted. The Department of Buildings lists the premises as having six SRO restricted. The Department of Buildings lists the premises as having six complaints, four Department of Buildings (DOB) violations and one Environmental complaints, four Department of Buildings (DOB) violations and one Environmental Control Board (ECB) violation which have all been closed or resolved. However, Control Board (ECB) violation which have all been closed or resolved. However, there are four Department of Buildings violations which remain openthere are four Department of Buildings violations which remain open for said property. for said property. They are as follows: They are as follows:

Department of Buildings open violations by violation numberDepartment of Buildings open violations by violation number

XXX-XXXXX-XX

XXXXX-XX XXXXX-XX

XXXX-XXXXXX-XX

XXXXXXXXXX/XXXXX – Elevator XXXXXXXXXX/XXXXX – Elevator

(See Department of Buildings Property Profile Overview, annexed hereto as Exhibit “D” (See Department of Buildings Property Profile Overview, annexed hereto as Exhibit “D” and Department of Buildings Violations sheet, annexed hereto as Exhibit “E”). and Department of Buildings Violations sheet, annexed hereto as Exhibit “E”).

4747


We are in the process of obtaining copies of the open We are in the process of obtaining copies of the open violations XXX-XX, violations XXX-XX,

XXXXX-XX and XXXX-XX noted above. Open violation XXXXX-XX and XXXX-XX noted above. Open violation XXXXXXXXX/XXXXX involves the building’s elevator. XXXXXXXXX/XXXXX involves the building’s elevator. (See (See Department of Buildings Open Violation Display, annexed Department of Buildings Open Violation Display, annexed hereto as Exhibit “F”). hereto as Exhibit “F”). Again, you may want to get a credit Again, you may want to get a credit for these open violations or have them resolved by the closing for these open violations or have them resolved by the closing date. date.

There are X jobs filed with the Department of Buildings There are X jobs filed with the Department of Buildings concerning the premises. concerning the premises. (See Department of Buildings (See Department of Buildings Job Overview, annexed hereto as Exhibit “G”).Job Overview, annexed hereto as Exhibit “G”).

4848


Certificate of Occupancy with Certificate of Occupancy with Department of Buildings Department of Buildings

The most recent certificate of occupancy for XXX The most recent certificate of occupancy for XXX XXXXX Street is dated August 20, 1999 and sets forth XXXXX Street is dated August 20, 1999 and sets forth the permissible uses of the premises. the permissible uses of the premises.

The cellar is for use as a tenant’s laundry, storage, The cellar is for use as a tenant’s laundry, storage, superintendent’s workroom, boiler room and incinerator. superintendent’s workroom, boiler room and incinerator. The first floor is for two retail stores. The first floor is for two retail stores.

The second through sixth floors are for six apartments The second through sixth floors are for six apartments (with Building Code Occupancy Group C designation) on (with Building Code Occupancy Group C designation) on each floor. each floor. (See Department of Buildings Certificate (See Department of Buildings Certificate of Occupancy, annexed hereto as Exhibit “H”) of Occupancy, annexed hereto as Exhibit “H”)

4949


XXX XXXX AVENUEXXX XXXX AVENUE

Registration, Violations and Jobs with Department of BuildingsRegistration, Violations and Jobs with Department of Buildings

According to the attached documents, said property is on file with According to the attached documents, said property is on file with

the Department of Buildings as having a Department of Finance the Department of Buildings as having a Department of Finance Occupancy Code of “D9-elevator apartment”. Occupancy Code of “D9-elevator apartment”.

This designation is used to classify the building’s tax status. It is not This designation is used to classify the building’s tax status. It is not SRO restricted. SRO restricted.

The Department of Buildings lists the premises as having eight The Department of Buildings lists the premises as having eight complaints, thirteen Department of Buildings (DOB) violations and complaints, thirteen Department of Buildings (DOB) violations and seven Environmental Control Board (ECB) violations which have all seven Environmental Control Board (ECB) violations which have all been closed or resolved. been closed or resolved.

(See Department of Buildings Property Profile Overview, annexed (See Department of Buildings Property Profile Overview, annexed hereto as Exhibit “I” and Department of Buildings Violations sheet, hereto as Exhibit “I” and Department of Buildings Violations sheet, annexed hereto as Exhibit “J”). annexed hereto as Exhibit “J”).

5050


Notably, there are thirty-seven Department of Buildings violations Notably, there are thirty-seven Department of Buildings violations which which remainremain openopen for said property. for said property.

(See Department of Buildings Violation Displays, annexed (See Department of Buildings Violation Displays, annexed hereto collectively as Exhibit “K”). hereto collectively as Exhibit “K”).

Please note that we are in the process of obtaining the DOB Please note that we are in the process of obtaining the DOB violations not included as part of Exhibit K. violations not included as part of Exhibit K.

Again, you may want to get a credit for these open violations or Again, you may want to get a credit for these open violations or have them resolved by the closing date.have them resolved by the closing date.

There are two jobs filed with the Department of Buildings concerning There are two jobs filed with the Department of Buildings concerning the premises. the premises.

(See Department of Buildings Job Overview, annexed hereto as (See Department of Buildings Job Overview, annexed hereto as Exhibit “L”).Exhibit “L”).

5151


Certificates of Occupancy with Certificates of Occupancy with Department of BuildingsDepartment of Buildings

The most recent certificate of occupancy for XXX XXXX The most recent certificate of occupancy for XXX XXXX Avenue is dated March 20, 1964. Avenue is dated March 20, 1964.

It permits the building’s cellar to be used as tenants’ It permits the building’s cellar to be used as tenants’ laundry, storage, superintendent’s workroom, boiler laundry, storage, superintendent’s workroom, boiler room and incinerator. room and incinerator.

The first story is for five doctors’ offices accommodating The first story is for five doctors’ offices accommodating thirty people in total. thirty people in total.

The second through sixth stories are for six apartments The second through sixth stories are for six apartments per story. per story.

(See Department of Buildings Certificate of (See Department of Buildings Certificate of Occupancy, annexed hereto as Exhibit “M”). Occupancy, annexed hereto as Exhibit “M”).

5252


Housing, Civil and Supreme CourtHousing, Civil and Supreme Court

XXX XXXXX STREET AND/OR XXX XXXXX AVENUEXXX XXXXX STREET AND/OR XXX XXXXX AVENUE

Housing CourtHousing Court With regards to Housing Court, our search revealed litigation With regards to Housing Court, our search revealed litigation

regarding the premises as follows:regarding the premises as follows:

XX XXX Street v. XXX, Apt. XX (Index No. L&T: XXXXXX/XXXX) XX XXX Street v. XXX, Apt. XX (Index No. L&T: XXXXXX/XXXX)

XX XXX Street v. XXX, Apt. XX (Index No. L&T: XXXXXX/XXXX)XX XXX Street v. XXX, Apt. XX (Index No. L&T: XXXXXX/XXXX)



XX XXX Street v. XXX, Apt. XX (Index No. L&T: XXXXXX/XXXX) XX XXX Street v. XXX, Apt. XX (Index No. L&T: XXXXXX/XXXX)



(See Housing Court printout, annexed hereto as Exhibit “N”). (See Housing Court printout, annexed hereto as Exhibit “N”).

5353


We believe these cases to be closed according to We believe these cases to be closed according to representations made by the owner to that effect. representations made by the owner to that effect. However, to verify this we are in the process of ordering However, to verify this we are in the process of ordering the actual cases from the court’s archives. These files the actual cases from the court’s archives. These files will take 2-4 weeks to arrive. Further information will be will take 2-4 weeks to arrive. Further information will be available following the arrival of the files. Each of the available following the arrival of the files. Each of the above referenced cases are very old and although above referenced cases are very old and although probably have little value for closing purposes these probably have little value for closing purposes these cases may be instructive on buyout-eviction cases may be instructive on buyout-eviction proceedings. A representation should be garnered from proceedings. A representation should be garnered from the Seller that none of these cases are active and none the Seller that none of these cases are active and none have any unpaid judgments or rent reductions or side have any unpaid judgments or rent reductions or side agreements.agreements.

5454


Civil CourtCivil Court

Our search revealed that there is presently no Our search revealed that there is presently no current litigation involving XXX XXXXX Street. current litigation involving XXX XXXXX Street. No printout was available from the Civil Court No printout was available from the Civil Court computer database showing this absence of computer database showing this absence of litigation. litigation.

5555


Supreme CourtSupreme Court

Our search revealed that there are three litigation matters Our search revealed that there are three litigation matters possibly related to the premises, including:possibly related to the premises, including:

xxxxx xxxxx v. xxxx xxxxx xx. (Index No.: xxxxxx/xxxx) xxxxx xxxxx v. xxxx xxxxx xx. (Index No.: xxxxxx/xxxx)

xxxxx xxxxx v. xxx xxxx xxxxxxx (Index No.: xxxxxx/xxxx)xxxxx xxxxx v. xxx xxxx xxxxxxx (Index No.: xxxxxx/xxxx)

xxxxx xxxxx v. xxxxxxxxx xxxxx (Index No.: xxxxxx/xxxx) xxxxx xxxxx v. xxxxxxxxx xxxxx (Index No.: xxxxxx/xxxx)

xxxx xxxxx, xxx. v. xxxx & xxxx, xx. (Index No.: xxxxxx/xxxx)xxxx xxxxx, xxx. v. xxxx & xxxx, xx. (Index No.: xxxxxx/xxxx)

(See Supreme Court Civil Index Inquiry printouts, (See Supreme Court Civil Index Inquiry printouts, annexed hereto collectively as Exhibit “O”)annexed hereto collectively as Exhibit “O”)

5656


According to representations made by the landlord, the cases According to representations made by the landlord, the cases may be closed. may be closed.

However, to verify this we are in the process of ordering the However, to verify this we are in the process of ordering the actual cases from the court’s archives. actual cases from the court’s archives.

These files will take 2-4 weeks to arrive. These files will take 2-4 weeks to arrive. Further information will be available following the arrival of the Further information will be available following the arrival of the

files. files. Again, each of the above referenced cases are very old and Again, each of the above referenced cases are very old and

although probably have little value for closing purposes they although probably have little value for closing purposes they may be instructive on buyout-eviction proceedings. may be instructive on buyout-eviction proceedings.

A representation should be garnered from the Seller that none A representation should be garnered from the Seller that none of these cases are active and none have any unpaid of these cases are active and none have any unpaid judgments or rent reductions or side agreements.judgments or rent reductions or side agreements.

5757


Division of Housing Community and Division of Housing Community and Renewal (DHCR)Renewal (DHCR)

XXXXX XXXXXX STREETXXXXX XXXXXX STREET

Case/docketsCase/dockets As per the “Case By Building Report” there are forty-As per the “Case By Building Report” there are forty-

eight cases of record on filed with DHCR for this eight cases of record on filed with DHCR for this property, several of which have prior/current liability property, several of which have prior/current liability potential. It is to be noted that there are X rent reduction potential. It is to be noted that there are X rent reduction orders on file for this property, all of which are more than orders on file for this property, all of which are more than X years old. While DHCR continues to stats as a general X years old. While DHCR continues to stats as a general principal, there is no X year time limit to negate old principal, there is no X year time limit to negate old service orders, several individual rulings have stated that service orders, several individual rulings have stated that the X year rule does apply.the X year rule does apply.

5858


For sure if you purchase the property and filed 5 For sure if you purchase the property and filed 5 owner restoration applications, at least one of owner restoration applications, at least one of the applications would probably trigger a tenant the applications would probably trigger a tenant to file a rent overcharge complaint; this is better to file a rent overcharge complaint; this is better to leave these old orders untouched. to leave these old orders untouched. Conversely, should any of the tenants affected Conversely, should any of the tenants affected by the old service orders have any arrears issue by the old service orders have any arrears issue and become aware of the old service orders, and become aware of the old service orders, housing court or DHCR in certain circumstances, housing court or DHCR in certain circumstances, may rule that the services orders affect the may rule that the services orders affect the owner’s ability to collect the current “legal” rent.owner’s ability to collect the current “legal” rent.

5959


Various Various Granted building-wide services order XX-XXXXX-B Granted building-wide services order XX-XXXXX-B

issued X/XX/XX. issued X/XX/XX.

Without reviewing a copy of the order we have no Without reviewing a copy of the order we have no way to know if the order only affects one apartment way to know if the order only affects one apartment or all 20 apartments in the building, the owner never or all 20 apartments in the building, the owner never appealed the issuance of this order.appealed the issuance of this order.

6060


Apt. XX Apt. XX Granted apartment services order XX-XXXXXX-S issued Granted apartment services order XX-XXXXXX-S issued

X/XX/XX, the owner appealed the issuance of this order X/XX/XX, the owner appealed the issuance of this order twice but without success. twice but without success.

The owner represented to DHCR in 2004 the apartment The owner represented to DHCR in 2004 the apartment was Legally High Rent Vacancy deregulated but I do not was Legally High Rent Vacancy deregulated but I do not think that you can deregulate an apartment with an think that you can deregulate an apartment with an apartment services order still in effect. apartment services order still in effect.

This apartment also has a granted Heat/Hot Water order This apartment also has a granted Heat/Hot Water order from September.from September.

6161


Various Various Granted building-wide services order XX-XXXXXX-B Granted building-wide services order XX-XXXXXX-B

issued X/X/XX. issued X/X/XX.

Without reviewing a copy of the order we have no way to Without reviewing a copy of the order we have no way to know if the order only affects one apartment or all XX know if the order only affects one apartment or all XX apartments in the building, the owner never appealed the apartments in the building, the owner never appealed the issuance of this order.issuance of this order.

(See DHCR Cases by Building Report, annexed (See DHCR Cases by Building Report, annexed hereto as Exhibit “P”)hereto as Exhibit “P”)

6262


Lease v. Rent RegistrationLease v. Rent Registration In regards to XXX XXXX Street, we found that the rents for In regards to XXX XXXX Street, we found that the rents for

Apartments XX, XX, XX, and XX are appropriately registered based Apartments XX, XX, XX, and XX are appropriately registered based on the copies of the leases and renewal leases provided to us by on the copies of the leases and renewal leases provided to us by the landlord. the landlord.

Please see the attached spreadsheet (Please see the attached spreadsheet (Exhibit “Q”), Exhibit “Q”), which indicates which indicates the following about XXX XXXXX Street: rent status, DHCR the following about XXX XXXXX Street: rent status, DHCR registration rent amount, DHCR registration summaries, and lease registration rent amount, DHCR registration summaries, and lease (or lease renewal) rent amounts and expirations. (or lease renewal) rent amounts and expirations.

Notably, we were not provided the leases for Apartments XX, XX, Notably, we were not provided the leases for Apartments XX, XX, XX, and XX. XX, and XX.

However these apartments appear by analyzing the registrations to However these apartments appear by analyzing the registrations to be properly registered. be properly registered.

Therefore we must find out (if the leases do not exist) what the Therefore we must find out (if the leases do not exist) what the status of the units are. status of the units are.

6363


We should get a representation in the contract of sale of We should get a representation in the contract of sale of the status. the status.

For example, if the Seller is unable to provide the leases, For example, if the Seller is unable to provide the leases, obtain a representation that the apartments are either obtain a representation that the apartments are either vacant or occupied and at the correct rental amount. vacant or occupied and at the correct rental amount.

Also get a representation that no sweetheart leases were Also get a representation that no sweetheart leases were entered into.entered into.

As such, we were unable to determine if the rent As such, we were unable to determine if the rent amounts in the DCHR registration for these units are amounts in the DCHR registration for these units are accurate. You should request that these missing leases accurate. You should request that these missing leases be produced by the landlord before the closing.be produced by the landlord before the closing.

6464


Building Registration IssuesBuilding Registration Issues According to the Initial rent registrations on file with the New York State According to the Initial rent registrations on file with the New York State

Division of Housing & Community Renewal (DHCR), this property contains Division of Housing & Community Renewal (DHCR), this property contains XX residential apartments in total. XX residential apartments in total.

Originally XX apartments were Rent Stabilized & X apartments had Rent Originally XX apartments were Rent Stabilized & X apartments had Rent Control status. Control status.

Since 1984, X of the X rent control apartments have converted to rent Since 1984, X of the X rent control apartments have converted to rent stabilization and only apartment XX was properly decontrolled with DHCR stabilization and only apartment XX was properly decontrolled with DHCR by the owner. by the owner.

Prior rent control apartment XX became stabilized on July 1, 2002 at a Prior rent control apartment XX became stabilized on July 1, 2002 at a substantial first rent of $1,850.00, which is not legal until this apartment is substantial first rent of $1,850.00, which is not legal until this apartment is decontrolled. decontrolled.

Also prior rent control apartment XX is listed as vacant on the 2005 Also prior rent control apartment XX is listed as vacant on the 2005 registration filings and a first rent for this unit is not legal until the apartment registration filings and a first rent for this unit is not legal until the apartment is properly decontrolled with DHCR as well. is properly decontrolled with DHCR as well.

6565


Until both apartments XX & XX are decontrolled, each Until both apartments XX & XX are decontrolled, each tenant has the legal opportunity to file a damaging Fair tenant has the legal opportunity to file a damaging Fair Market Rent Appeal (FMR). Market Rent Appeal (FMR).

The missing RR-1 forms must be submitted to DHCR The missing RR-1 forms must be submitted to DHCR immediately. immediately.

Registration records indicate that apartments XX & XX Registration records indicate that apartments XX & XX still retain rent control protections. still retain rent control protections.

Apart from the 3 missing RR-1 filings, the building and Apart from the 3 missing RR-1 filings, the building and apartments have been registered from 1984 to 2005.apartments have been registered from 1984 to 2005.

6666


Building Rent RollBuilding Rent Roll Adam Leitman Bailey, P.C. has reviewed all renewal and vacancy increases Adam Leitman Bailey, P.C. has reviewed all renewal and vacancy increases

taken for all apartments from 2001-2005 & most increases have followed taken for all apartments from 2001-2005 & most increases have followed Rent Guideline Board orders except for X apartments;Rent Guideline Board orders except for X apartments;

Apt. XX Apt. XX This apartment has been registered from 1999 to 2005 as having a legal This apartment has been registered from 1999 to 2005 as having a legal

rent of $2,000.00 but the 2005 filing noted that the tenant pays a preferential rent of $2,000.00 but the 2005 filing noted that the tenant pays a preferential rent of only $882.60. rent of only $882.60.

Do apartment leases from 1999 to current day list both the legal rent and Do apartment leases from 1999 to current day list both the legal rent and the preferential rents? If not, then the legal rent registered with DHCR is the preferential rents? If not, then the legal rent registered with DHCR is worthless.worthless.

Apt. XX Apt. XX For the unit to be legally deregulated as registered in 2004, $2,500.00 in For the unit to be legally deregulated as registered in 2004, $2,500.00 in

documented apartment renovations are needed prior to the X/X/XX documented apartment renovations are needed prior to the X/X/XX vacancy. vacancy.

6767


Apt. XX Apt. XX 2003 registered rent was $1,350.00, 2004 registered as deregulated 2003 registered rent was $1,350.00, 2004 registered as deregulated

status, inclusive of a vacancy increase, unless $16,300.00 was status, inclusive of a vacancy increase, unless $16,300.00 was spent in documented apartment renovations prior to the X/X/XX spent in documented apartment renovations prior to the X/X/XX vacancy, then the apartment is not legal deregulated. vacancy, then the apartment is not legal deregulated.

Apt. XX Apt. XX A first rent set for this prior rent control apartment will not be legal A first rent set for this prior rent control apartment will not be legal

until the apartment is decontrolled with DHCR. until the apartment is decontrolled with DHCR.

Apt. XX Apt. XX This unit should have been registered in 2005 as Deregulated status This unit should have been registered in 2005 as Deregulated status

as of X/X/XX. An amended 2005 registration form needs to be as of X/X/XX. An amended 2005 registration form needs to be resubmitted to DHCR for this apartment.resubmitted to DHCR for this apartment.

6868

Apt. XX Apt. XX 2003 registered rent was at $903.35, 2004 and inclusive of a 2003 registered rent was at $903.35, 2004 and inclusive of a

vacancy increase, unless a massive $37,400.00 was spent in vacancy increase, unless a massive $37,400.00 was spent in documented apartment renovations prior to the X/X/XX documented apartment renovations prior to the X/X/XX vacancy, then the apartment is not legal deregulated. vacancy, then the apartment is not legal deregulated.

Apt. XX Apt. XX The $1,850.00 first rent set for this prior rent control The $1,850.00 first rent set for this prior rent control

apartment in 2002, is not legal until the apartment is apartment in 2002, is not legal until the apartment is decontrolled with DHCR. decontrolled with DHCR.


Tenant RegistrationTenant Registration There is a current registration for the year 2005 on file with the New York State There is a current registration for the year 2005 on file with the New York State

Division of Housing & Community Renewal (DHCR). This premises is registered as Division of Housing & Community Renewal (DHCR). This premises is registered as having X tenants, all of whom are of Rent Stabilized status. having X tenants, all of whom are of Rent Stabilized status. (See Registration Rent (See Registration Rent Roll, annexed hereto as Exhibit “R”). Roll, annexed hereto as Exhibit “R”).

The copy of the DHCR registration lists the below current tenants and their monthly The copy of the DHCR registration lists the below current tenants and their monthly rents rents (See Exhibit “R”)(See Exhibit “R”): :

X.XXXXX.XXXX Apt XXApt XX $1,525.00 $1,525.00

XXX XX XXX XX Apt XXApt XX $696.51 $696.51

XXX XXXXX XX Apt XX Apt XX $571.09$571.09

XX XXXXX XXX Apt XXApt XX $816.42$816.42

XX XXXXX XXX Apt XX Apt XX $540.79$540.79

XX XXXXX XXX Apt XXApt XX $1,441.08$1,441.08

XXX XXXXX XXX XXXXX Apt XXApt XX $559.59$559.59

XXX XXXXX XX Apt XXApt XX $658.60$658.60

According to the registrations the landlord provided us dating back to the year 2001, we According to the registrations the landlord provided us dating back to the year 2001, we are able to determine that it is correct that none of the current tenants have rent are able to determine that it is correct that none of the current tenants have rent control protections. control protections.


XXX XXXX AVENUEXXX XXXX AVENUE

Case/docketsCase/dockets

As per the “Cases by Building Report” for XXX XXX Avenue, there As per the “Cases by Building Report” for XXX XXX Avenue, there are fifty-two cases of record on file with DHCR for this property. are fifty-two cases of record on file with DHCR for this property. (See DHCR Cases by Building Report, annexed hereto as (See DHCR Cases by Building Report, annexed hereto as Exhibit “S”). Exhibit “S”). We are in the process of obtaining the files for We are in the process of obtaining the files for several cases but most of the cases have been denied and closed several cases but most of the cases have been denied and closed and others are many years old. On the surface, it appears that this and others are many years old. On the surface, it appears that this building has had very little problems. However we will be building has had very little problems. However we will be uncovering any possible issues.uncovering any possible issues.


Lease v. Rent Registration Lease v. Rent Registration

In regards to XXX XXX Avenue, we found that the rents for In regards to XXX XXX Avenue, we found that the rents for Apartments XX, XX, XX, XX, XX, XX, XX, XX, and XX are Apartments XX, XX, XX, XX, XX, XX, XX, XX, and XX are appropriately registered based on the copies of the leases and appropriately registered based on the copies of the leases and renewal leases provided by the landlord. renewal leases provided by the landlord.

Please find the attached spreadsheet (Please find the attached spreadsheet (Exhibit “T”), Exhibit “T”), which indicates which indicates the following about XXX XXXX Avenue: rent status, DHCR the following about XXX XXXX Avenue: rent status, DHCR registration rent amount, DHCR registration summaries, and lease registration rent amount, DHCR registration summaries, and lease (or lease renewal) rent amounts and expirations. (or lease renewal) rent amounts and expirations.

Notably, we were not provided the leases for XXX XXXX Street, Notably, we were not provided the leases for XXX XXXX Street, apartments XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, apartments XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, XX, and XX. XX, XX, XX, and XX.

As such, we were unable to determine if the rent amounts in the As such, we were unable to determine if the rent amounts in the DCHR registration for these units are accurate. DCHR registration for these units are accurate.


However these apartments appear by analyzing the However these apartments appear by analyzing the registrations to be properly registered. registrations to be properly registered.

Therefore we must find out (if the leases do not exist) what Therefore we must find out (if the leases do not exist) what the status of the units is. the status of the units is.

We should get a representation in the contract of sale of the We should get a representation in the contract of sale of the status. status.

For example, if the Seller is unable to provide the leases, For example, if the Seller is unable to provide the leases, obtain a representation that the apartments are either vacant obtain a representation that the apartments are either vacant or occupied and at the correct rental amount. or occupied and at the correct rental amount.

Also get a representation that no sweetheart leases were Also get a representation that no sweetheart leases were entered into.entered into.


Tenant RegistrationTenant Registration There is a current registration for the year 2005 on file with the New There is a current registration for the year 2005 on file with the New

York State Division of Housing & Community Renewal (DHCR). York State Division of Housing & Community Renewal (DHCR). The premises are registered as having twenty-eight apartments. The premises are registered as having twenty-eight apartments. These apartments are registered as having Rent Stabilized status or These apartments are registered as having Rent Stabilized status or

being permanently or temporarily exempt. being permanently or temporarily exempt. The reasons for these exemptions are cited for either being because The reasons for these exemptions are cited for either being because

they are owner/employee occupied, high rent vacancies or for “other” they are owner/employee occupied, high rent vacancies or for “other” reasons. reasons.

At least four units are vacant according to the DHCR printout. At least four units are vacant according to the DHCR printout. It is very important to determine the occupancy status of these units and It is very important to determine the occupancy status of these units and

to ensure that if they are vacant that they remain vacant. to ensure that if they are vacant that they remain vacant. If they are not vacant add to the contract that these units must be If they are not vacant add to the contract that these units must be

delivered vacant.delivered vacant. (See Registration Rent Roll, annexed hereto as Exhibit “U”). (See Registration Rent Roll, annexed hereto as Exhibit “U”).


The copy of the DHCR registration lists the below tenants and their monthly rents The copy of the DHCR registration lists the below tenants and their monthly rents (See Exhibit “U”)(See Exhibit “U”): :

XXXX XXXXXXX XXX Apt XXApt XX $1,130.08 $1,130.08

XX XXXXX XXX Apt XXApt XX $1,485.53$1,485.53

XXX XXXXXXXX XXXXX Apt# XX Apt# XX $1,180.23$1,180.23

XXXX XXXXXXXX XXXX Apt# XXApt# XX $673.84$673.84

XXXXXX/XXXXXXXXXXXXX/XXXXXXX Apt# XXApt# XX $0.00$0.00

XXXXX/XXXXXXXXXXXXX/XXXXXXXX Apt# XXApt# XX $0.00$0.00

XXXXX XXXX XXXXX XXXX Apt XXApt XX $646.13$646.13

XXX XXXXXXX XXXX Apt XXApt XX $1,510.38$1,510.38

XXX XXXXXX XXX Apt XXApt XX $1,130.07 $1,130.07

OtherOther Apt XXApt XX $1,026.67$1,026.67

Other Other Apt XX Apt XX $992.79$992.79

High rent vacancyHigh rent vacancy Apt XXApt XX $2,100.00$2,100.00

XXXX XXXXXXX XXX Apt XXApt XX $1,198.44$1,198.44

XXXX XXXXXXXX XXXX Apt XXApt XX $536.01$536.01

XXXX XXXX XXXX XXXX Apt XXApt XX $745.50$745.50

XXXXXl XXXXXXXXl XXX Apt XXApt XX $892.81$892.81

High rent vacancyHigh rent vacancy Apt XXApt XX $2,100.00 $2,100.00

XXXX XXXXXXXX XXXX Apt XXApt XX $1,019.71$1,019.71

XXXX XXXXXXXX XXXX Apt XX Apt XX $442.70$442.70

X. XXXXXXX X. XXXXXXX Apt XXApt XX $1,898.78$1,898.78

XXX XXXXXXX XXXX Apt XX Apt XX $788.88$788.88


High rent vacancy High rent vacancy Apt XXApt XX $2,148.63$2,148.63

XXX XXXXXX XXX Apt XXApt XX $1,243.25$1,243.25

XXXX XXXXXXX XXX Apt XXApt XX $865.53 $865.53

XXXX XXXX XXXX XXXX Apt XXApt XX $1,021.25 $1,021.25

XXX XXXXXXX XXXX Apt XX Apt XX $1,047.29$1,047.29



SUGGESTED REPRESENTATIONS/ SUGGESTED REPRESENTATIONS/ CREDITS TO INCLUDE CONTRACT OF CREDITS TO INCLUDE CONTRACT OF

SALESALE Apartment XX, with the tenant of record, XXXXX XXX, can be Apartment XX, with the tenant of record, XXXXX XXX, can be

surrendered as it is subletted at this time and XX. XXXX is a partner surrendered as it is subletted at this time and XX. XXXX is a partner of the Seller. A representation and a surrender agreement should of the Seller. A representation and a surrender agreement should be prepared and executed at contract signing.be prepared and executed at contract signing.

The superintendent has two apartments because “he does such a The superintendent has two apartments because “he does such a great job”. You may wish too have these delivered vacant or at great job”. You may wish too have these delivered vacant or at least one of the units in your possession at the time of closing.least one of the units in your possession at the time of closing.

Obtain a representation that the vacant units shall remain vacant Obtain a representation that the vacant units shall remain vacant thru closing. thru closing.

Again, we determined that based on the documents provided by the Again, we determined that based on the documents provided by the landlord, the registration is correct in that is does not provide any of landlord, the registration is correct in that is does not provide any of the tenants with rent control protections.the tenants with rent control protections.


In instances where the registration has changed for year In instances where the registration has changed for year to year due to a tenant vacating, the facts surrounding to year due to a tenant vacating, the facts surrounding the vacatur of their respective units should be obtained, the vacatur of their respective units should be obtained, as well as evidence demonstrating that they were legally as well as evidence demonstrating that they were legally evicted or voluntarily surrendered the premises. Such evicted or voluntarily surrendered the premises. Such evidence includes any court papers and any surrender evidence includes any court papers and any surrender agreements/buyouts. agreements/buyouts.

Obtain indemnification from the owner that he will pay Obtain indemnification from the owner that he will pay you for damages and legal fees if any of the tenants you for damages and legal fees if any of the tenants claim they were illegally evicted and have a right to claim they were illegally evicted and have a right to possession. possession.

It should be noted that a one year statute of limitations It should be noted that a one year statute of limitations exists for an illegal lockout.exists for an illegal lockout.


Obtain a copy of all current and past litigation (include Obtain a copy of all current and past litigation (include administrative proceedings), copies of all litigation administrative proceedings), copies of all litigation documents, settlement agreements, and other orders documents, settlement agreements, and other orders and agreements affecting the property. Obtain a copy of and agreements affecting the property. Obtain a copy of all correspondence, violations, or orders from any all correspondence, violations, or orders from any government agency relating to the property; and affects government agency relating to the property; and affects dates and times when he was the Seller. dates and times when he was the Seller.

Obtain a forwarding address of the Seller.Obtain a forwarding address of the Seller. Obtain representation that all units that the owner is Obtain representation that all units that the owner is

claiming are vacant, if any, are indeed vacant and that claiming are vacant, if any, are indeed vacant and that lawful possession of each unit has occurred.lawful possession of each unit has occurred.


Obtain provisions that the owner shall not enter into any new Obtain provisions that the owner shall not enter into any new leases signed between the contract signing and the closing. leases signed between the contract signing and the closing.

Obtain ability to enter into leases pre-closing.Obtain ability to enter into leases pre-closing. Obtain right for Buyers and its employees to enter building at Obtain right for Buyers and its employees to enter building at

reasonable times pre-closing. reasonable times pre-closing. There are four open violations associated with said premises. There are four open violations associated with said premises.

(See DHPD Open Violations report, annexed hereto as (See DHPD Open Violations report, annexed hereto as Exhibit “C”). Exhibit “C”). As shown in the chart below, the violations As shown in the chart below, the violations consist of 2 class A violations, 1 class B violation, and 1 class consist of 2 class A violations, 1 class B violation, and 1 class C violation. You may want to receive a credit for the cost to C violation. You may want to receive a credit for the cost to fix the alleged violations. fix the alleged violations.

Obtain a representation that all violations will be completed by Obtain a representation that all violations will be completed by the date of closing.the date of closing.



AptStory

Reported Date,nov ISSUEDDate

Hzrd Class

Order noItem no

Violation ID

Violation Description StatusStatus Date

Owner CertificationDates:1st Lead,2nd Lead

1996/09/18 1997/01/21

A XXX XXXXXXX XxxxxxxxxxxxXxxxxxxxxxxxxxx.

NOV SENT 1997/01/21

1997/05/16 -

- -

1991/01/03 1991/01/22

C XXX XXXXXXX XxxxxxXxxx xxx xxxx xxxxxXxxxxxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxx xxxxx xxxxxxx xxxxx xxxx xxxx xxxx xxxx xxxxx.

NOV SENT 1991/01/22

1991/02/13 -

- -

1985/12/22 1986/01/13

B XXX XXXXXX xxxxxxx xx xxx xxxx xxXxxx xxxxXxxx xxxx xxxxxx.

1 NO ACCESS 1989/12/02

1986/03/09 -

- -

1984/04/05 1984/04/23

A XXX XXXXXXX Xxxxxx xxxxx xxxxx xxxxxx xxxxx xxxxx xxxxx xxxxxxXxxx xxxx xxxx.

NOT COMPLIED 1991/01/03

8080

All of the following provisions should survive closing. If possible, monies should be escrowed at closing to ensure compliance.

Obtain a credit or at least an indemnification for the violations listed below. These violations are from 2000 and 1999 and may have been cured but not reported to the Department of Buildings.

Although we have ordered the violations (Department of Buildings open violations by violation number V21-63, V5913-62, V940-54, V050399E9444/107902 – Elevator) obtain in the contract of sale a representation in writing of any liability and that said violations have been cured. Also do this for XXX XXXXX Avenue.

Obtain a representation that no active Supreme Court, Housing Court or litigation in any court continues.

Obtain a representation that any debts, judgments or any monies owed under any cause of action or settlement has been paid and satisfied.


Obtain a representation that no prior cases affect the rents or any other issues or matters involving the subject premises. It appears that the building is very clean and has little litigation. Of course, without seeing the files, we need such a representation.

With regards to any matters with DHCR, obtain a representation that no open cases exist and that no decisions bind or affect any of the subject units.

Owner claims that many of the units noted in the primary report do not have leases. Hence, a representation should be made that these do not exist (the units that do not have leases are noted in the primary report.) If the Seller is unable to provide the leases, obtain a representation that the apartments are either vacant or occupied and at the correct rental amount.

Obtain get representations that no sweetheart leases were entered into.

Obtain a representation that no leases will be signed or new occupants shall enter the premises without the consent of the buyer.


To be determined:

Why apartments XX and XX were registered as “other” in 2001;

How apartments XX and XX became owner/employee occupied in 2002 and remained so in 2003, 2004, and 2005; Why apartments XX and XX were registered as “other” in 2005 when they were registered to XXX XXX and XXXX XXX in 2004; and

Why apartments XX, XX, XX, XX, and XX were registered as “high rent vacancy” in 2005


COMMERCIAL SPACE We have reviewed your commercial lease and the following is

a summary. The lease expires on May XX, 2010. There is no option to renew. The security deposit which must be confirmed with the seller should equal $20,250.00.

According to the lease, Tenant also has the right to the use of a storage closet in the basement, as well as a portion of the open garden area adjoining the ground floor. Tenants’ share of the tax bill equals 1/12th of the Real Estate Taxes, Water and Sewer.

For the final year of the lease term the tenant shall pay only a pro rate share of such percentage of any increase in taxes. Tenant shall pay 25% of any increase in the Real Estate Taxes and 100% of any increase in frontage water.

Attached please find a formal lease summary for your review of the ground floor of XXX XXXXX.


Negotiating the contract of sale for the multi family dwelling with rent regulated tenants 1

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