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Estate's right to buy clarified in court.

New York's next to highest court has found the estate of a deceased stabilized insider tenant has no right to buy and apartment even if the tenant died after the Black Book was served. (Russell vs. Raynes, N.Y.L.J., May 3, p. 21, c.3, App. Div. 1st Dept.). The case does not prohibit estate sales completely. In fact the court left open the door for the state to buy based upon the activities of the sponsor and its sales staff when the activities of the sponsor and its sales staff when the subscription agreement was tendered by the estate.

What happened as reported, was that tenant died after the offering plan was served. The estate sent a letter to sponsor informing sponsor of decedent's death. Sponsor responded that the offering plan --"excluded and estate of a deceased tenant from exercising any rights under the plan." Three months later tenants and sponsor negotiated a deal which reduced the price to insiders. After the amendment was served, sponsors sales staff solicited the estate and all building tenants to buy. The estate claimed that sponsor's sales arm promised the estate the right to "flip" and reportedly showed the apartment to outsiders willing to buy insider rights. The estate tendered a subscription agreement and down payment which was not countersigned by sponsor but held. Apparently, sponsor after obtaining its 15 percent to make the conversion effective from other purchaser refused to honor or countersign the estate's purchase agreement.

The estate sued for the right to buy claiming that since the stabilized tenant died after black book was served the right to buy vested in the estate at that time. To this the court said no, since the stabilized tenant died after black book was served the right to buy vested in the estate at that time. To this the court said no, since and estate is not in "actual possession and occupancy" as defined in conversion law.

The court did, however, order a trial on the grounds that an issue of fact arose as to sponsor's behavior, both before and after receipt of the estate's Subscription Agreement which may well have resulted in a binding sales agreement between the parties.

The message for conversion sponsors is clear:

(1) Before black book determine number of deceased tenants.

(2) Write into your plans or amendments the conditions under which you will accept estate subscription agreements.

(3) Write in a time limit in days as to when you can reject estate subscriptions.

(4) Do not count estate sales as part of the 15 percent conversion count.

NOTE: The events in this case took place at the pinnacle of the co-op boom. The moral of this case of sponsors is that you can't have your conversion cake and eat it too! Proper planning and your approach should be determined in advance to assist your conversion efforts, in good or bad times.
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Insider Outlook
Author:Apfelberg, Alvin I.
Publication:Real Estate Weekly
Date:May 22, 1991
Words:486
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