Condo Conversion Confusion in NYC – The 51% CountJune 2019
From a number of calls I have been receiving, it appears not everyone has thought through the implications of the new calculation of the number of purchasers necessary for a condominium or cooperative conversion from rental status under the amended statute, General Business Law Section 352-eeee.
The 51% count for a non-eviction plan is based upon the number of residential apartments in the building or buildings, not the number of tenants. That's a fixed number which might only change if there are physical changes to the building such as unit combinations, provided the Attorney General agrees.
The only possible purchasers who may count towards the 51% requirement are tenants who are in occupancy of their apartments on the date the offering plan is accepted for filing. This may be an ever changing number of potential purchasers as tenants come and go, particularly tenants renting at free market rates. Any vacancy eliminates a potential purchaser from the count. Even a new tenant who rents after the offering plan is accepted for filing won't count. Only new tenants who rent before the plan is filed may count.
As tenants turn over during the process the percentage of existing tenants in occupancy needed for the conversion effectively increases. If almost half the building is vacant due to expiring leases or otherwise and not leased again before plan is filed, virtually every tenant in occupancy would have to agree to purchase. If there are more vacancies than that, conversion would be impossible. Converters in recent years wanted vacancies in order to improve the units and increase prices. Now that strategy would work against them, because any purchaser of such a unit would not count towards the 51%. It might actually be necessary to offer to pay existing tenants who are about to leave in order to convince them to stay. That offer may have to be on a non-discriminatory basis, because this is for the group the owner would need to purchase.
Using this calculation, it's easy to see that the tenants, who would no doubt organize and sign enforceable "no-buy" pledges as has been done in the past, would have all the power in negotiations. Given that so many of the existing tenants would need to agree to purchase, it's difficult to understand how any converter (especially a condo converter only entitled to ordinary income as a dealer) would net more proceeds from a conversion than the owner could by selling the entire building to an investor.