Hello, I was wondering how usual and customary this is. I have been looking into a new construction for investment, and in the offering plan, one of the special risks includes the fact that the sponsor is providing his own "Limited Warranty" instead of adhering to the standard Housing Merchant Implied Warranty. Is this common? Or should it raise a serious red flag? I know this is something a... [more]
Hello,
I was wondering how usual and customary this is. I have been looking into a new construction for investment, and in the offering plan, one of the special risks includes the fact that the sponsor is providing his own "Limited Warranty" instead of adhering to the standard Housing Merchant Implied Warranty.
Is this common? Or should it raise a serious red flag? I know this is something a lawyer should review (and he will be), but I wanted to get a general idea: when a developer wants to use his own Warranty, does this allow the freedom of a shoddy build? Or maybe that he doesn't want any sort of liability? OR, is a developer's "limited warranty" pretty standard among most (small) new construction condos? I'm just trying to get a sense of how egregious this bullet point in the prospectus is.
Thanks for any help!
[less]
Plan for the worst, hope for the best. The warranty for many small developers may not be worth the paper they are printed on. My building had material defects- now mostly fixed (on our own dime), but it was tough to swallow the repeat, high dollar amount assessments. Owners had to spend more than $35k each on average to fix the worst of the problems. Since we had a bunch of speculators involved- it was far more than they anticipated spending, and we had to force some sales or face defaults. Lucky for those owners- they were mostly able to recoup their investment with a decent return- despite the hefty assessments.
Ignored comment.
Unhide
Response by UE98
over 10 years ago
Posts: 100
Member since: Jan 2013
Thanks for the responses.
NWT-
Great information, but I am still trying to find out if such a sponsor-created "limited warranty" is a common thing in new, small condo constructions -- not necessarily details about the law itself. And if it IS a common thing, to what extent the changes should go "safely" (knowing there is no "safe" situation).
(For example, I know materials are covered for 6 yrs, in-wall systems for 2 yrs, and construction defects for 1 yr. But if an offering plan should change this, would it be customary?).
Semerun-
Thats kinda what I'm trying to avoid. Did you also have a developer's limited warranty in your prospectus? What do you mean by speculators and how much did this change the financial burden?
Ignored comment.
Unhide
Response by semerun
over 10 years ago
Posts: 571
Member since: Feb 2008
UE98- Forget what you know about warrantee's re: new construction condos. The developer will either be legit or they won't. If they are concerned about their reputation they will step up and make things right- especially on the larger items. The NY A.G.'s office won't go after a small developer unless the situation is downright dangerous.
We considered suing, but the developer set up shop as an LLC- so we were afraid of spending all these $$$ chasing after a company that was never going to pay out.
Our prospectus didn't mention a developer's limited warranty- but it did have a special risk section that went down a similar path. As for speculators- we had nearly half our building as investor apartments- not a good thing in any building, but especially bad in a small building. This made decision making horrible because the investor units wanted short term fixes- as cheap as possible while owner occupied units wanted the repairs and common charges to accurately reflect that this was our home. It took far too long to fix our problems because of this- and it was only when the many of the investor units were resold did we start truly fixing our problems. If you are buying a new construction building- you have no way to know who will be your neighbors. I wouldn't casually recommend buying an investment unit in a small building that is brand new.
Ignored comment.
Unhide
Response by NWT
over 10 years ago
Posts: 6643
Member since: Sep 2008
The NYS-required warranty (or a sort-of-equivalent) is only for new construction of less than five stories. To find out how often it's waived -- to put in context -- you'd have to find a lawyer who's seen a lot of such offering plans. There aren't that many less-than-five-story new condos, so the odds aren't good.
The statutory warranty, the implied warranty, and the promises made by the sponsor in the offering plan are all you've got to go on. And then, as semerun said, every aspect of the development business is founded upon avoiding liability and evading enforcement when the inevitable problems crop up.
Read the offering plan of even something as fancy as 15 CPW, by developers with an excellent reputation. You'd think, reading it, that they intended to erect a shitbox and would be nowhere to be found once they had your money.
Then think how ratty and dated that shiny new construction and doo-dads are going to look in ten years. Then skip the suspense and buy a condo that's 20-100 years old, where almost every construction defect has already been found and addressed.
Ignored comment.
Unhide
Response by Edwinyc
over 10 years ago
Posts: 58
Member since: Apr 2014
NWT: does that mean to buy a condo in a building that's 20-100 years old and has been converted to a condo building?
Just make sure that the sponsor isn't in control of the board and then worry less about the "shitbox" problem.
'/%3e%3c/g%3e%3c/svg%3e)
https://www.google.com/url?sa=t&source=web&rct=j&ei=f8L8VKCoMse0ggTAzIOoAg&url=http://alblawfirm.com/siteFiles/News/CACB058F0395064FBD197218FCB4EACC.pdf&ved=0CDMQFjAH&usg=AFQjCNF6gQVg6vzO6nwhWMSx9qPwIb-Jeg&sig2=totqVBcM6SZ2yDO_kP-SfQ
Plan for the worst, hope for the best. The warranty for many small developers may not be worth the paper they are printed on. My building had material defects- now mostly fixed (on our own dime), but it was tough to swallow the repeat, high dollar amount assessments. Owners had to spend more than $35k each on average to fix the worst of the problems. Since we had a bunch of speculators involved- it was far more than they anticipated spending, and we had to force some sales or face defaults. Lucky for those owners- they were mostly able to recoup their investment with a decent return- despite the hefty assessments.
Thanks for the responses.
NWT-
Great information, but I am still trying to find out if such a sponsor-created "limited warranty" is a common thing in new, small condo constructions -- not necessarily details about the law itself. And if it IS a common thing, to what extent the changes should go "safely" (knowing there is no "safe" situation).
(For example, I know materials are covered for 6 yrs, in-wall systems for 2 yrs, and construction defects for 1 yr. But if an offering plan should change this, would it be customary?).
Semerun-
Thats kinda what I'm trying to avoid. Did you also have a developer's limited warranty in your prospectus? What do you mean by speculators and how much did this change the financial burden?
UE98- Forget what you know about warrantee's re: new construction condos. The developer will either be legit or they won't. If they are concerned about their reputation they will step up and make things right- especially on the larger items. The NY A.G.'s office won't go after a small developer unless the situation is downright dangerous.
We considered suing, but the developer set up shop as an LLC- so we were afraid of spending all these $$$ chasing after a company that was never going to pay out.
Our prospectus didn't mention a developer's limited warranty- but it did have a special risk section that went down a similar path. As for speculators- we had nearly half our building as investor apartments- not a good thing in any building, but especially bad in a small building. This made decision making horrible because the investor units wanted short term fixes- as cheap as possible while owner occupied units wanted the repairs and common charges to accurately reflect that this was our home. It took far too long to fix our problems because of this- and it was only when the many of the investor units were resold did we start truly fixing our problems. If you are buying a new construction building- you have no way to know who will be your neighbors. I wouldn't casually recommend buying an investment unit in a small building that is brand new.
The NYS-required warranty (or a sort-of-equivalent) is only for new construction of less than five stories. To find out how often it's waived -- to put in context -- you'd have to find a lawyer who's seen a lot of such offering plans. There aren't that many less-than-five-story new condos, so the odds aren't good.
The statutory warranty, the implied warranty, and the promises made by the sponsor in the offering plan are all you've got to go on. And then, as semerun said, every aspect of the development business is founded upon avoiding liability and evading enforcement when the inevitable problems crop up.
Read the offering plan of even something as fancy as 15 CPW, by developers with an excellent reputation. You'd think, reading it, that they intended to erect a shitbox and would be nowhere to be found once they had your money.
Then think how ratty and dated that shiny new construction and doo-dads are going to look in ten years. Then skip the suspense and buy a condo that's 20-100 years old, where almost every construction defect has already been found and addressed.
NWT: does that mean to buy a condo in a building that's 20-100 years old and has been converted to a condo building?
Just make sure that the sponsor isn't in control of the board and then worry less about the "shitbox" problem.