Outside Date

my understanding is that the operational year define the time table.It gets complicated since the developer might have filed and got an approved amendments with the AG in which they delayed or set new date for the BEGINNING of the operating year and therefore extend the legal time for closing. If in this case they had variouse amendments for the operating year (financial projections) and one of the amendment had a new 12 months period starting later than 8/2008, than the outer date was effectively changed with the approval of the AG and can be later than 6/30/2009.

for linden78 it was not tied to the operating year (which may or may not have have been consistent with the outside date) - the purchase contract had a very clear date by which the fist closing was supposed to occur and if it didn't occur within one year of that fixed date the sponsor would offer recission - this was pretty black and white in the contract. not sure whether the operating year dovetailed with that outside date - but am sure that the recission offer keyed off the clear contractual term regarding closing date plus one year.

Thanks 007. I guess if its that easy, they must have made those changes/amendments.

And thanks ezal. I'll double check on the Linden78. The story I heard was very explicit about Schedule B. But I could have misunderstood.

It kinda makes sense to me that the stated first closing date rules, not the operating year. Because in almost all cases the operating year would end BEFORE the 1 year after the estimated first close. So if the operating year governed the outside date, then the other date would always be irrelevant ('cuz it falls later). And that makes no sense.

just found this thread. My response, OnMadPark, is in the One Mad thread but a quick clarification on some things as I understand them.

First, a purchaser's contract can have a different outside date as a negotiated point. Assume the outside date of one year from Schedule B's anticipated close is October 1, 2010. As a buyer, I can negotiate to have my contract state the outside date for my apartment is June 1, 2010. That will supersede the offering plan's outside date. Or I can specify that my apartment must close by October 1, 2010, not just one apartment.

As 007 said nicely, the sponsor can try and extend the outside date through amendments. Remember, the AG's approval of an amendment does not constitute a legal ruling on it.

As an example, the AG can approve an amendment that changes the ceiling height on every apartment from 14' to 8'. Since 8' is a legal ceiling height, the AG approves the amendment. But notice how material the change in ceiling height is. The purchaser would still have the right to petition to break the contract based on the material change. They can appeal to the AG who could put pressure on the Sponsor or they could just sue.

The AG doesn't "approve" the new outside date.

One Madison has a sloppy plan that has mis-matched dates on stated outside date versus Schedule B. The two dates *should* match up. They did on Linden and Setai. That they do not in the One Madison plan is a problem, no doubt. But I highly doubt the Sponsor will win that fight. The Schedule B will most likely be the date used.

Now that doesn't mean that the AG will put pressure on the One Mad sponsors to offer the right to rescind. They might decide to stay out of the fight and let it play out in civil court. If the AG decides not to put pressure it doesn't mean they approve and back the Sponsor's reading. Like all organizations, they must decide what to spend time and energy on. So purchasers would just have to sue in that case.

But the Sponsor won't get anywhere in a lawsuit by a purchaser where the Sponsor claims the non-schedule B outside date or the "approval" by the AG of the amendment outside date. It will cost time and money but I'm pretty sure the Sponsor will lose that fight. With nothing to gain by offering everyone the right of rescission and in the absence of pressure from the AG, I would expect the developer to fight it hard.

Changing the outside date in an amendment is a material change. So either purchasers get the right to cancel contracts on the amendment change or the original Schedule B date must hold. The Sponsor is not allowed to delay delivery without allowing the out. For obvious reasons.

This is messy because of the sloppy original offering plan. It shouldn't be so messy but sloppy work creates a bit of chaos. I highly doubt the AG or a court will allow the Sponsor to benefit from their own sloppiness.

OldWest,

Wow. A veritable font of information! Thanks.

It will be fascinating to watch this one.

The developer must be in overdrive trying to get things closed before something blows up. Get people in those dang apartments before any options open up.

Because if the door is open -- I would think every buyer would be in a position to either walk away, or ask for a price reduction. And if forced, the sponsor would have to renegotiate prices to keep buyers interested and to avoid having a bunch of units on the market all at once.

I guess all we have to do to know the outcome is to keep an eye on the StreetEasy listings!

Not sure the listings will tell us anything useful. Purchasers will be the source. They will be the first ones to know whether the AG pressured the Sponsor to offer the right of rescission. I'm sure someone will post if that letter goes out.

If the letters don't go out, I'd bet donuts that someone or multiple purchasers sue the developer. That suit will ultimately stop all non-cash closings as the banks avoid underwriting mortgages in this kind of situation. I would be shocked if a suit is filed and a bank still writes a mortgage on an apartment. I would look for the sponsor to start trying to push cash closings and maybe even offer discounts to cash buyers.

It will be quite messy at that point. Lawsuits, press, finger pointing, cash closings and the like. Closers could ultimately be caught in the middle. If the sponsors loses the inevitable lawsuits, then it gets even stickier.

Assuming they get 15% or more closed or kept in contract, buyers could end up owning in a mostly unsold building where the sponsor would need to either rent out the remaining apartments or cut prices. In either case, those purchasers will be taking a value loss. If more than 85% of the buyers walk, it becomes worse. The condo plan won't be effective, like the deadline the Apthorp is running into, except this will be after the fact.

The cleanest thing would be for the AG to exert pressure. See Setai and Linden for the example. No lawsuits or major issues but the sponsors took huge baths. Of course, the sponsors are the one responsible for missing the outside dates and there's no crying in baseball. Risk capital is called that for a reason.

There's been talk of shadow inventory and zombie projects. Not sure what to call these.

Oldwest, One Madison Park's plan has already been declared effective. It was done back in April. They have hard deposits from buyers for more than 15% of the building. The Apthorp deadline is totally different. They, unlike One Madison Park, do not have deposits and hard contracts from 15% or more of buyers. Thus, their scramble to meet that sales threshold.

You do raise and interesting point regarding the conflicting dates in the plan (6/30/09 VS. 9/1/09) though I'm told that the 9/1/09 date will hold the weight. Either way, it will be an interesting one to watch.

Anybody know? What if the AG rules for recisson,and enough contract holders do recind to bring the percent below 15%.if a few buyers had already closed and have deeds--but now the condo plan has become undone,wht is the status of thoe few owners with deeds?

BobbyO; The situation isn't so different if they offer right of rescission and more than 85% of the contracts drop out. They no longer meet the requirement. See my point if more than 85% of the buyers walk. Hence my "after the fact" comment. It's somewhat uncharted territory these days. It isn't something that's happened in the past decade or so. Buyers given the out have kept their contracts in the past. Now, of course, different story.

It's a different race, yes. Apthorp needs to run the race. One Madison already has. However, getting disqualified after running the race is possible.

Who told you that 9/1/09 will hold weight? Curious to know as the conflicting dates benefit the Sponsor. Perhaps three years ago it might have been a close call but I'm betting there's no love for Sponsor errors these days.

Jrw293: Not sure. It was a legal closing at the time. Those buyers could sue but I would need to figure out on what basis. The plan isn't automatically void if they fall below 15%. It could be voided or they could be given a grace period to re-attain 15%. Limbo is fun for everyone!

We will see if the AG pressures the Sponsor. If yes, it's over. If no, lawsuits will almost certainly be filed and the conclusion will take a bit longer as litigation will hold up mortgages and closing and cause much consternation.

This isn't a good situation for anyone. Not buyers, not the sponsors. Of course, all the Sponsors had to do was finish the building earlier. The delays appear to be mainly caused by the desire to bring Rem in to make the second project bigger and more grand. Hard to pity the Sponsor for their own mistakes...

Despite the mess, I actually do think this is a good building -- particularly the full floor units (which looks to be most of them). I would think even with the mess -- owners could be convinced to stick with it, perhaps with some price adjustments.

Also, if Rem were ever to rise again, the time would be now. My gut says that one reason the developer didn't dare move forward with Rem was because it would have meant amending the plan and giving everyone the right to back out. If everyone has that right -- there's nothing to lose!

But as you've said, OldWest, it's hard to believe that a bank would finance an even bigger project for a sponsor who has kind of mucked things up so far . . . but who knows?! Heck, don't we all want to see Wonderboy post an "I told 'ya so"!

It's not that simple. I'm not a fan of the building. Sure there are great views but it really sticks out. To each their own.

I also don't separate the building from the financial situation. Could be the best building in the world as a physical structure but if the finances are a mess, it loses its luster to me.

In terms of people backing out if/when given the right, we can only guess. I would imagine a good chunk would be relieved to get their deposits back and then it snowballs. Who wants to be the remaining buyers?

And the Sponsor did move forward with Rem. Forward enough to stop construction, re-do plans, and muck up the whole thing. Greed can be a big gotcha.

Another article about the Renwick and outside dates seems to say the right outside date is the end of the first plan year -- not the month the developer says they will close.

It appears in the case of the Renwick 22, the first closings were scheduled for June 2008, and the first year ran from June 1, 2008 to May 31, 2009.

May 31 was the key date (the operating year). It wasn't June 30 -- one year after the month first closings were promised (the first closing date).

http://therealdeal.com/newyork/articles/22-renwick-developer-refutes-buyers-claims-about-sham-closing-andrew-bradfield-orange-management

OnMadPark: you don't need an article. You need to read the actual regulations as outlined by the AG

go to the AG site and download and read...but I have pulled the relevant portion for you

http://www.oag.state.ny.us/bureaus/real_estate_finance/condominiums.html

----------------------------
13 NYCRR § 20.3(o)(12)

(12) State when sponsor expects the first closing of a unit to occur which should
correspond to the first year of operation projected in Schedule B. State that if
such date is delayed twelve (12) months or more, purchasers will be offered
rescission.

----------------------------

WHICH SHOULD CORRESPOND TO THE FIRST YEAR OF OPERATION PROJECTED IN SCHEDULE B is fairly self-explanatory. Now the offering plan for One Mad has conflicting dates. Specifically, the Schedule B is before the outside date that is referenced.

I could foresee a scenario where IF the Schedule B date were AFTER the Outside date, the outside date would prevail. It being the earlier of the two and still within 12 months of the projected Schedule B. Obviously, a Sponsor would never, if ever, do that on purpose. It gives them less time.

But that isn't the case. The outside date is after 12 months post Schedule B date. It's an "error" or a "mistake" or sloppy. Whatever. Regardless, the AG is fairly clear. Such date should be the same as the Schedule B date.

Again, I won't bet if the AG pressures One Madison to send out rescission letters. It's a busy office and if pressure doesn't work, they would need to follow up with civil or criminal charges which is very, very rare. If they don't pressure the Sponsor, I don't think a buyer or buyers would have too tough a problem getting a judge in a civil case to force right of rescission. They might prefer letting buyers handle it.

Either way, the outside date has come and gone. The AG regulation I quoted is pretty clear.

I've seen those regs OldWest. But (in a non-professional capacity), I read them to support exactly the opposite position.

Rescission is only based on the projected first close date. And the projected first close date only has to "correspond" to the plan year. That doesn't mean the promised first close is on exactly the same day as the plan year, does it? Because I've seen plans where they first close is stated as a "month" (e.g. first closings in June, 2007), not a day.

In fact, wouldn't developers argue that as long as the first closings were promised during the plan year, they "correspond" to the plan year? Theoretically, the developer could promise first closings for month 12 of the first operating year, and thereby have almost 2 years to get things done! Like one that had a commercial unit. Operations might commence in month 1, but residential closings aren't promised until the end of the year.

Sorry, I might have parsed too much!

OnMadPark: parse much? Um, yeah!

---------------------
20.3(h)(1)
The budget shall be based upon a specified twelve (12) month period to
commence on the date when it can reasonably be projected that condominium
operations will begin and no sooner than six (6) months after the submission of
the offering plan for filing. When calculating the projection, include sufficient
time to arrange for the closings. If the actual or anticipated date of
commencement of condominium operation is to be delayed more than six (6)
months from the budget year projected in the offering plan, the plan must be
amended to include a revised budget disclosing current projections.
--------------------

The only reasonable reason to have condominium operations begin is because there are unit(s) closed. Further, note that Sponsor should account for the time that closings actually take when deciding on the Schedule B year's start (DAY 1).

The intent of the Schedule B and anticipated first closing date is pretty clear. They should correspond. Not the Year of the Schedule B. The first date.

BTW: the 6 months delay lanuage from budget year calculated is also from the first day of the operating year. I'm sure plenty of people have gotten revised operating budgets in the past 6 months for all the buildings being discussed here, even though the outside date had not yet been hit then.

If it were 6 months from DAY 365, no one would have gotten a revised operating budget yet. But it isn't. It's 6 months from DAY 1. And the Sponsor's lawyers agreed as they sent out those revised budgets when 6 months of the first operating year approached.