Real Estate Newsletter

Also joining the Kane Kessler P.C. real estate department was Edward Bullard, Jr. Ed acted as general counsel to Restaurant Associates negotiating commercial leases on behalf of the company. Prior to that, Ed was an associate at the firm Meister Seelig & Fein LLP. Ed has a strong background in lease negotiation as well as real estate related transactional work.

We are sure that you will find both Michael and Ed to be knowledgeable and hope you will have an opportunity to work with them.

Many of our clients ask us what is title insurance and is it really necessary? Title insurance applies to real property. Therefore, you will see it used in transactions involving residential homes, brownstones, Condominium apartments and commercial buildings. Title insurance is not generally used in the purchase of cooperative apartments.

Most contracts provide that the transfer of the premises is conditioned upon the seller conveying "marketable title" to the premises at the closing. This means that the seller must provide ownership of the premises free and clear of all liens, judgments, encumbrances (i.e., mortgages) and other adverse property matters except those the purchaser specifically agrees to in the contract. After the contract is signed, the purchaser’s attorney will order and review the title report. A copy of the title report will also be delivered to the seller’s attorney and the lender’s attorney, if the purchaser is financing the transaction.

The title report is an examination of the public records to disclose the previous owners of record, prior deeds, prior mortgages, judgments, probate proceedings and divorces, foreclosures, tax and construction liens and other matters which can affect title to the premises. The title report will also disclose any error in the public records which may need to be corrected. Based upon this search, the title company certifies to the purchaser that the seller truly owns the property, has full authority to sell it and that no one else has claimed any interest in it. The report will determine if there are violations against the premises, if there is a valid certificate of occupancy issued by the Building Department or if the real estate taxes are paid current. Finally, in transactions involving land, the report will contain a survey showing the record lines of the property and whether the premises are located on a public or private street.

In some cases, a title report may uncover title defects which could jeopardize a buyer’s ability to purchase clear title to the premises. If the report reveals title defects, the seller may be required to undertake procedures to clear the defects. The purchaser’s attorney will confirm that all title defects, if any, have been cured before the closing. If the seller cannot satisfy a title condition, the purchaser is given the option to cancel the transaction and receive a refund of the down payment.

At closing, the purchaser will pay a one time fee for title insurance which protection continues in effect as long as the purchaser owns the property. The fees are governed by New York State so they rates are usually non-negotiable.

After the closing is concluded and after the deed and the mortgage are recorded in the county clerk’s office, the title company will issue a title policy. The title policy is an agreement that the title company will defend the property owners’ title in court and pay all losses involved in any claim covered by the policy’s terms including the cost of legal fees. The title policy will be forwarded to the purchaser’s attorney who in turn should send it to the purchaser for safe keeping.

When the property is sold in the future, the title policy should be retrieved by the seller. In the event that the new purchaser’s title company finds an unacceptable title condition that was resolved when the purchaser acquired the property, the property owner can look to his or her title company to resolve the title issue.

Kane Kessler P.C. represented a purchaser who bought a commercial building on the west side of Manhattan for $8.5 million dollars in September 2000. The premises were occupied by 12 tenants under leases with very low rents. The leases are set to expire in the next few years. Our client intends to convert the building into mixed use condominium ownership.

Last year, our client entered into a contract of sale to purchase a $12 million dollar residential condominium unit on the upper east side of Manhattan. The original contract called for the sponsor to build out the space to the owners’ specifications. Prior to closing in September 2000, the sponsor offered to reduce the sales price by $1.2 million if the purchaser would agree to undertake the build out. Our client acquiesced. The closing occurred in October 2000.

In September 2000, our client agreed to purchase all three apartments on the twelfth floor at the Atalanta Condominium in excess of $6 million. The combined space was approximately 6,900 square feet. The offering plan called for the purchaser to pay the New York State and New York City transfer taxes. Since the offering plan listed the three apartments as separate units, the NYC Department of Finance would have taxed the units at the commercial rate of 2.625%. We convinced the sponsor to amend the offering plan to reflect that the apartment was one dwelling unit and accordingly the tax was reduced saving our client $72,000.

Our client purchased a small carriage house in the east village for $420,000.00. When the title report was completed, the survey reflected that the structure did not have a wall on one side of the premises and rested up against the adjoining building. The neighbor agreed to provide an affidavit that she would not tear down the adjoining building as long as she was the owner. However, this did not address the possibility that she may sell the adjoining premises to another party who may demolish the building. At our instruction, our client retained a structural engineer who estimated the cost of installing a retaining wall in the event the adjoining building was demolished. The seller agreed to reduce the purchase price by $50,000 and the closing was concluded.

Over 14 months ago, our client agreed to purchase a newly developed $2 million condominium apartment at 66 Leonard Street in Manhattan. The closing was seriously delayed and the Sponsor obtained the certificate of occupancy in September 2000. During the pendency of the closing, our client switched employment and was relocated out of New York. The value of the apartment increased dramatically but the client did not want to close and resell the apartment due to tax implications. The Sponsor agreed to release our client from the contract, returned the down payment plus interest and paid our client $50,000 to cancel the contract.

Douglas Elliman has invited Kane Kessler, P.C. to provide seminars to real estate brokers as part of its training program. Eric P. Gonchar, Michael Messi and Ed Bullard have provided these services in October and December 2000. Topics include reviewing the material provisions of the contract of sale with an emphasis on co-op and condo applications, the co-op board approval process and the mortgage contingency provisions. Brokers are encouraged to ask questions. The program is run by Kay Brover at Douglas Elliman.

Assignment and sublet clauses are the most important and carefully negotiated clauses in a commercial lease. From the landlord’s perspective, a tenant should not be able to "transfer" its rights under the lease without the landlord’s approval. From a tenant’s perspective, in the event the tenant has financial difficulties, a tenant will want the right to transfer its rights under the lease to another tenant. In many instances, this approval or "consent" process can be time consuming and burdensome for the tenant.

Many leases contain a "recapture" clause which allows the landlord to take the premises back and terminate the lease when a tenant desires to sublet or assign the lease, the If the value of the premises has increased, the landlord can recapture the space and relet it at a higher rent.

The right to recapture presents several problems to a tenant. If a prospective subtenant or assignee sees that the lease contains a recapture provision, the subtenant/assignee may not want to pursue the space if they know that the landlord may recapture the premises.

In addition, if the tenant desires to sublet or assign the lease, the lease will usually provide that the tenant will have to use the landlord’s broker and pay the broker commission to find a new subtenant or assignee. This can be costly to the tenant. Also, since the landlord generally has the right to approve the sublet/assignee, the process of finding a subtenant/assignee and obtaining the landlord’s consent can take three to four months. If the tenant is in financial trouble and cannot meet its rental payments, the landlord can slow the process down and basically force the tenant to allow the landlord to recapture the space and retain all or part of the security deposit to reimburse the landlord for broker commissions and build out costs paid by the landlord at the commencement of the lease.

Developers continue to build condominiums and the apartments continue to be sold at a record pace at record prices. The newest major project is the Park Imperial located at Broadway and 55th Street. Original asking prices are $1,000 per square foot. Kane Kessler P.C. is representing over one dozen purchasers at the Park Imperial.

Other new projects to be built are mixed use condominiums at Columbus Circle and at the old Alexanders site at 59th Street and Lexington Avenue. Projected prices may start as high as $2,000 per square foot!

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