Manhattan Real Estate Q&A: What is a Restrictive Covenant?

By
Real Estate Agent with The Corcoran Group

Q: What is a Restrictive Covenant?

A: Manhattan housing is primarily made up of coop and condominiums. Both coops and condos in Manhattan have restrictive covenants.

The legal definition for a restrictive covenant: "A provision in a deed limiting the use of the property and prohibiting certain uses".

Most all condominiums in Manhattan have the restrictive covenant: First Right of Refusal.

Most coops in Manhattan have the restrictive covenant: Right to Refuse.

Many people confuse the two different covenants. First right of refusal means the condominium has the first right of refusal on an offer but they would have to buy the condominium unit for the same price and terms being offered. They either exercise that right and purchase the unit or they waive the right and issue a waiver so the condominium unit owner can close the sale and transfer title.

A coop right to refuse gives the coop board the right to refuse any coop purchaser for any reason or no reason. A coop is not required to give a reason for a board turn down. Coops must adhere to fair housing and human rights laws. The burden is on the buyer or seller to prove the coop turned down a sale because of discrimination.

A flip tax that many coops and some condominiums impose is also a restrictive covenant requiring the seller to pay a portion of their sale price or profit to the coop or condo board.

Restrictive covenants may prohibit certain financing. FHA does not loan in coops and condominium buildings with restrictive covenants. The Federal Housing Finance Agency is considering a rule that would prohibit Fannie Mae from purchasing loans in buildings where there is a private Transfer Tax /Flip Tax.

Update: 2/2/2011 REBNY (Real Estate Board of New York) saves Flip Tax

I welcome the opportunity to answer any questions about the differences between selling and buying coops and condominiums, flip taxes or general questions about the Manhattan real estate market.

courtesy of:

Mitchell Hall, Associate Broker, The Corcoran Group

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Rainmaker
472,026
Chandler Real Estate Liz Harris, MBA
Liz Harris Realty - Chandler, AZ
#ChandlerRealEstateAgent

On another note, it is getting harder and harder to get a loan on a condo in Arizona... I am assuming this is not the case in NYC, correct?

Jan 08, 2011 08:19 PM #1
Rainmaker
682,641
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Ah the flip tax!!! Such fun.  The right of refusal is also a huge issue. In Westchester the boards range from totally reasonable to 100% insane.  I've learned to pick my way through the crazy boards...

Jan 08, 2011 08:20 PM #2
Rainmaker
512,250
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan, NYC

Hi Liz, Yes, It's getting harder and harder. Many more rules and guidlines that were never issues before. Many condos now require private portfolio lending from non gov't backed banks.

Ruthmarie, Many condos are trying to act like coops but legally the can not. They have to buy the apartment if they don't like the buyer.

Jan 08, 2011 08:31 PM #3
Rainmaker
839,542
Joshua Zargari
MJ Decorators Workshop LI staging and home decorating - Lynbrook, NY
MJ Decorators Workshop

I wonder if it makes sense to rent instead of buying...

Jan 10, 2011 07:28 PM #4
Rainmaker
682,641
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Mitchell - I was basically referring to coops only.  There is one condo that reserves right of first refusal - but has yet to exercise it.   Great stuff on these past couple of posts!!!

Jan 11, 2011 12:14 AM #5
Rainmaker
512,250
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan, NYC

Joshua, Yes for many people renting makes sense. I have had several clients this year, that after I sold their apartments I found them a rental apartment.

Ruthmarie, Thanks, I don't know of a condo that has ever exercized the right of first refusal but many are asking for compresensive board packages like coops. They think if they charge really high fees and ask for all kinds of personal financial documents they will scare away the "Riff Raff."

Jan 17, 2011 09:58 AM #6
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Rainmaker
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Mitchell J Hall

Lic Associate RE Broker - Manhattan, NYC
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