Reiner, Reiner & Reiner,
LLP
Attorneys at Law
80 Wall Street - Suite 1018
New York, NY 10005
(212) 269-2466 voice
(212) 269-2467 fax
info@reinerlaw.com e-mail
Real Estate Transaction Engagement Letter
(Co-Op Purchase)
Mr. John Doe
Re: Unit 9-C, 111 West 11th Street, New York, NY
We thank you for contacting us to review the contract of sale of the co-op which you are contemplating purchasing. We appreciate your entrusting this work to us. In accordance with contemporary practice, at the outset of an engagement, we routinely confirm in writing our understanding of the scope of our work and the costs involved.
As we understand it, our engagement consists of
a) preliminary discussions with you regarding the preliminary inspections as to the physical condition of the property and its major operating systems; examination of the Offering Plan, including its eight amendments, the corporate minutes and recent financial statements; conferring with you as to any concerns these may raise;
b) the negotiation of contract with the attorney for the sellers, including any appropriate language as to the financing contingency, if any, the attendance to the proper execution of the contract, and the ordering of the lien search;
c) examination of any mortgage commitment which you may secure;
d) examination of the lien search and notifying the sellers as to the steps, if any, they must take in order to make their title marketable.
e) assisting in scheduling the closing of title and coordinating attendance by you and by us, the sellers and their attorney, the Bank's representative and the representative of the co-op corporation; preparing closing cash adjustments, and seeing to it that the New York State and City transfer tax forms have been properly prepared and executed and that the taxes have been paid; examination of the purchase-money mortgage documents, if any, you will be required to execute; and
f) obtaining other forms and affidavits required by the recording officer or by custom.
Finally we will prepare a comprehensive closing statement to memorialize the purchase and will provide certain information your accountant will need for the preparation of your tax return in the year of the closing.
For all of the above services, we will charge you for the actual time we expend using our normal hourly rates (which presently are $ 300 per hour), and, in addition, our invoice will contain nominal charges for the reimbursement of our out-of-pocket disbursements on your behalf for excess postage, express mail, photostats, facsimile transmissions, and the like, for we feel that each client is best served by paying only for the above disbursements for which he is responsible.
Since by nature, each sale of real estate is unique, it is impossible at this stage to estimate fairly the total costs involved; however, based on extensive past experience, we believe that some ten hours will be involved in this effort, so that our tentative estimate of our fees is in the neighborhood of $ 2,700, based on the above listing of services. This, we emphasize, is only an estimate, and unforeseen work requiring time in excess of that summarized above will necessitate a higher aggregate fee.
We will expect payment of our charges at the time of the closing, and if no closing takes place, payment is to be made upon termination of the contract of sale.
We strongly suggest that you not execute any contract until you have reviewed the following summary of the major concerns we shared with you by phone yesterday.
1) The corporate papers contain rules, normal for the area, requiring the consent of the directors (or two thirds of the shareholders) for the resale or subletting of the Unit. On the one hand, this may cause problems for you when you want to sell or sublet; on the other hand, such a policy enhances the quality of life at the building, allowing the Board to attempt to filter out undesirable prospective tenants.
2) Our review of the corporate minutes showed that although some major repairs (asbestos, cornice and roofing) have been accomplished since the conversion, there is evidence that more major repairs will need to be accomplished, given the age and condition of the building. Since the building's reserve fund was (and is) inadequate for this purpose, maintenance (rent) has been increased steadily to cover these and other expenses, and the Board has regularly enacted assessments against owners for major repairs. These increases and assessments may be expected to continue, and you should expect to pay $ 200 to $300 more in monthly charges in the near future to cover your share of these building expenses.
3) Electricity and gas are separately metered and are not included in maintenance.
4) The mortgage has just been refinanced. The managing agent was unable to furnish us with details as to its terms. As opposed to the former mortgage, the new mortgage probably includes some provision for amortization of principal and will be a greater cash drain on the building=s budget. At the maturity of the new mortgage, it will again have to be repaid or refinanced. The share of the assessment which you will have to pay in that connection if there is no refinancing amounts to about $ 30,000. Not all of your co-owners may be able to come up with their parallel assessments, and such failures may put your equity at risk.
5) You have made inquiries as to the price of apartments that have sold recently in the building and are satisfied that the price per share you are paying is in line with the price per share for such recent sales.
6) You are familiar with the neighborhood.
7) We have not examined the report of your engineer and trust that you are satisfied with it, taking into account the $ 1,600 adjustment of the purchase price to allow for the defective electrical installation. You are apprised of the asbestos which apparently exists under the top of the radiator covers, within the walls as insulation for the steam and/or hot water risers, and which may also exist as insulation on exposed pipes. There is also some discussion in the corporate minutes of lead paint in the hallways. Should you be required to correct any hazardous condition within your apartment, it would be at your cost, the level of which we cannot estimate.
8) We have discussed with you the possibility that the building to the east may be razed and rebuilt to a height of more than nine stories, and you have stated that this should not affect your apartment, since it has no lot line windows facing east.
9) We assume that the ninth floor has five apartments and thereby complies with the certificate of occupancy, a copy of which was included in the prospectus. Any discrepancy would eventually give rise to a building department violation, which the co-op corporation would have to cure at its expense.
10) There is included in the prospectus a lengthy opinion, a copy of which is enclosed, of the sponsor=s counsel as to the deductibility for income tax purposes of a portion of your maintenance payments. You have not retained us to give a separate opinion as to this question, and you understand that the expressing of any opinion as to income tax matters is beyond the scope of our engagement.
11) Our experience is that more conservative co-ops do not allow financing of more than 75% of the value of the Unit. The fact that this building exceeds this guideline slightly might adversely affect the co-op=s financial position in times of economic downturn.
12) You are no doubt aware of the financial risks inherent in owning any co-operative apartment. Unlike ownership of a condominium, you do not own any real estate. You merely have a long term lease, with a renewal right, and you own shares in the corporation which owns the building. Unlike the situation in a condo, if your co-op co-owners default in their payments and the building cannot pay the underlying mortgage or realty tax, you will have to pay their share in order to protect your equity.
If, at this time, you wish to move forward with the purchase, we suggest that you review the enclosed form of contract of sale and its two riders. If it is in order, will the two of you please sign all of the enclosed forms of contract (on all the signature lines indicated by your names) and return them to us with a signed copy of the enclosed engagement letter and a check to the order of Dewey Lovum, as Attorney, in the amount of $ 35,540. We will forward the contracts and the check to the sellers' attorney in escrow, pending receipt by us of two copies countersigned by the sellers.
If it conforms to your understanding of the terms of our engagement, will you also please sign and return the enclosed copy of this letter.
With best wishes, we remain,
Very sincerely yours,
REINER, REINER & REINER
By:______________________________
John P. Reiner
We agree with all of the above.
_________________________________
John Doe (date)
_________________________________
Jane Doe (date)
Enc. copy of letter