September 22, 2015

When purchasing a property in New York, there are a few basic items a purchaser may wish to review as part of its due diligence before signing a contract of sale. The below list highlights some common concerns, though each property is different and the scope and level of scrutiny may change depending on the situation. Ultimately, the goal is to be in a position where the buyer has enough information about the property to make an informed decision as to whether it wishes to proceed with the purchase or, where appropriate, renegotiate the terms of the deal.

1.  Title Search and Survey:

The title report will disclose the current owner, any use restrictions, mortgage liens, and other liens and easements of record. In New York City, Zoning Lot Descriptions and Party Wall Agreements are common. In Westchester and other surrounding counties, easements in favor of Consolidated Edison, New York State Electric and Gas Company and other utilities are common. Shared driveways, conservation easements, and public rights of way are other items that would be revealed in the title search. The survey will show any covenants and restrictions, party walls, and any encroachments or potential boundary line issues.

2.  Certificate of Occupancy:

The certificate of occupancy search will disclose the dates any structures were completed and the use for which they were permitted (i.e. residential, office, retail, barn, swimming pool, gasoline service station, etc.). For a multi-family home, the certificate of occupancy will also indicate the number of legal dwelling units.

3.  Municipal Violations:

The Title Search should include a municipal violations search. In jurisdictions like New York City, the search may include the fire department, department of environmental protection, and environmental control board. In Westchester, it may include the local department of buildings, fire department and County Department of Health.

4.  Environmental Review:

For single family residential transactions, oil tanks, radon, asbestos, lead-based paint and mold may be of interest to the buyer and can be included in the home inspection. On commercial deals the buyer will no doubt want to conduct a full-fledged Phase I Environmental Site Assessment in accordance with the Environmental Protection Agency’s All Appropriate Inquiry Rule in order to receive innocent purchaser status under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). If the Phase I ESA reveals any significant data gaps or recognized environmental conditions, an invasive Phase II Environmental Site Assessment, including e.g. soil and groundwater testing, may be warranted.

5.  Rent Control/Stabilization Analysis:

In some jurisdictions for multi-family properties with six or more apartments, the buyer may wish to examine whether the dwelling units are subject to rent control or rent stabilization or whether they have been legally deregulated.

6.  Lease Review:

If the property is encumbered with any leases, the buyer may wish to examine those agreements and request estoppel certificates from the tenants. The estoppel agreement will help inform the buyer whether there are any pending claims against the landlord, as well as to confirm the rent, expiration date, any pre-paid rent, security and other basic lease terms.

7.  Zoning Analysis:

A buyer may wish to perform a zoning analysis to determine whether the existing and/or proposed structures or uses are permitted under the local zoning code.

8.  Engineering Report:

A commercial buyer will typically have a licensed Professional Engineer inspect any structures on the property and draft a report indicating whether there are any defects (e.g. water leaks, foundation cracks, building code violations, etc.), as well as the useful life of certain major items such as the roof, boiler, fuel storage tank, etc.

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