Buying a new construction condominium in New York City can feel exciting, but it’s also one of the most legally complex transactions in the real estate market. Unlike resales, new development purchases involve layers of disclosures, Sponsor-drafted contracts, and long construction timelines that often favor the developer. Before signing anything, buyers should speak with an experienced real estate lawyer in NYC who understands how these projects are structured and where hidden risks typically appear. Without proper guidance, even sophisticated purchasers can overlook terms that significantly affect long-term cost and value.
Manhattan, NY condo real estate attorney Peter Zinkovetsky of Avenue Law Firm can help buyers assess these issues, identify red flags in the Offering Plan, and secure protections that many first-time and even seasoned buyers don’t know are available. The five risks outlined below highlight why early legal review is essential for anyone considering a new development unit. If you’re preparing to buy in a new condominium or are already in contract and need a second opinion, contact Avenue Law Firm at (212) 729-4090 for guidance and dedicated representation.
The Structural Shifting of Closing Costs and Transfer Tax Liability
In most real estate transactions in the United States, sellers pay the costs associated with transferring property, and buyers pay the costs associated with acquiring it. In New York City new construction, this usual allocation is reversed. Sponsors often require buyers to assume closing costs that normally belong to the seller, increasing the true cost of purchasing a new condominium.
The Transfer Tax Burden and the Gross Up Mechanism
New York City and New York State transfer taxes are legally the seller’s responsibility. However, new development Offering Plans commonly require buyers to pay these taxes on the Sponsor’s behalf. Once the buyer pays the seller’s taxes, the government treats that payment as additional consideration, which increases the taxable amount.
For example, on a $2,000,000 purchase, the combined 1.825% transfer tax is calculated on a slightly higher grossed-up amount. This raises the buyer’s total cash due at closing, since transfer taxes generally cannot be financed. With Manhattan condominium prices continuing to command premium valuations, particularly in neighborhoods like Tribeca, the Upper West Side, and Hudson Yards, these transfer tax obligations can represent substantial five-figure or even six-figure expenses that catch unprepared buyers off guard. These closing costs are recorded at the New York City Register’s Office, located at 66 John Street in Lower Manhattan, where all property transfers in the borough are officially documented.
The Sponsor’s Attorney Fee and Capitalization Costs
Buyers in new developments are often required to pay the Sponsor’s attorney fee, usually between $2,500 and $5,000. Buyers must also contribute to the building’s Working Capital Fund, typically equal to one or two months of common charges. Some Offering Plans add further costs, such as contributions toward the superintendent’s unit. These charges shift building start-up and operational expenses from the Sponsor to the buyer.
Strategic Mitigation: The Purchase CEMA and Negotiation Cycles
These fees are not always fixed. Under certain circumstances, buyers can reduce costs through strategy and timing.
A Purchase CEMA allows buyers to avoid paying Mortgage Recording Tax on assigned construction loan debt. The buyer pays the tax only on new loan funds above the assigned amount. Even when the Sponsor charges a fee for facilitating a CEMA, the buyer often saves significantly.
Given that New York State and New York City impose some of the highest mortgage recording taxes in the country, this strategy can save buyers tens of thousands of dollars on larger purchases. Documents for CEMA transactions are typically recorded at the Office of the City Register, where mortgage assignments and modifications are officially filed.
For negotiation windows, buyers have the most leverage during early sales, before the Offering Plan becomes effective, and during closeout, when only a few units remain. In these periods, Sponsors may agree to cover transfer taxes or waive capitalization fees. Any concession should be clearly reflected in the contract rider.
Condo Real Estate Lawyer in Manhattan – Avenue Law Firm
Peter Zinkovetsky, Esq.
Peter Zinkovetsky, Esq., Managing Partner of Avenue Law Firm, is a highly regarded Manhattan condo real estate attorney known for representing both local and international clients. Recognized as a Super Lawyers Rising Star for eight consecutive years, an honor awarded to less than 2.5% of attorneys statewide, Peter brings exceptional skill to complex condominium transactions, co-op matters, and high-value property deals throughout New York City. His experience has earned him top ratings from Avvo and acknowledgment in the New York Real Estate Journal’s Ones to Watch list.
A prominent voice in New York real estate law, Peter regularly teaches continuing education courses, writes extensively, and speaks at industry conferences across the U.S. and abroad. His insights have been featured in Forbes, The Real Deal, NY Post, Newsweek, and other leading publications. With a J.D. from New York Law School and a B.B.A. in Finance from Pace University, Peter focuses his practice on real estate transactions and property-related insurance matters, offering clients sophisticated guidance in the ever-evolving Manhattan condo market.
The Phantom Space and the Limits of Physical Warranty
Disputes about the physical apartment are common in new construction. The two main risks involve the difference between advertised and usable square footage and the limited warranties available under New York law.
The Legal Fiction of Square Footage and Loss Factors
In New York City, the square footage listed for a condominium unit is based on measurements defined in the Offering Plan. These measurements often include space outside a buyer’s actual living area, such as exterior wall thickness or portions of common elements. The result is the Loss Factor, which reflects the gap between marketed and usable space.
A unit sold as 1,000 square feet may contain only 750 to 800 square feet of true floor area. Loss factors of 27 to 30 percent are typical in Manhattan, and in large or irregular buildings, the percentage may exceed 35 to 40 percent. This practice affects buildings across all Manhattan neighborhoods, from Financial District high-rises to Upper East Side towers and newer developments in the West Village and Chelsea, where exterior walls and structural elements consume significant portions of what developers market as unit square footage.
Courts usually uphold these measurement practices as long as they are disclosed. The Harminc case is a rare exception where a buyer was allowed to rescind a contract due to an extreme discrepancy between the advertised and actual space. Most Offering Plans caution that square footage is only an estimate. Buyers can protect themselves by ordering a laser measurement before signing or by negotiating a rider that allows cancellation if the actual area differs from the floor plan by more than a set percentage.
The Housing Merchant Implied Warranty
Many buyers expect broad warranty protection in new construction, but the Housing Merchant Implied Warranty under General Business Law Article 36-B is narrow and time-limited.
Coverage is divided into three periods:
- One year for workmanship
- Two years for major systems such as plumbing and electrical
- Six years for structural defects affecting safety or habitability
Offering Plans often add strict notice requirements. Courts have confirmed that a timely written notice is a mandatory condition for making a claim. A buyer who fails to follow the notice procedure risks losing warranty rights entirely. Warranty disputes that proceed to litigation are typically filed in New York County Supreme Court, located at 60 Centre Street in Lower Manhattan, which has jurisdiction over real estate matters in the borough.
The Punch List and the 150 Percent Escrow Standard
During the final walk-through, buyers identify Punch List items such as cosmetic defects or malfunctioning appliances. Closing without an escrow holdback weakens the buyer’s ability to require repairs after funds have been released to the Sponsor.
A strong rider should require a holdback equal to 150 percent of the estimated repair cost. This amount covers potential overruns and ensures the buyer has resources if the Sponsor doesn’t complete the work within the agreed timeframe. If the Sponsor fails to finish the items, the buyer can use the escrow funds to hire their own contractor.
The Indefinite Wait and Contractual Exit Limits
New construction contracts often lack firm closing timelines. Unlike resale contracts, which usually provide a specific closing date or an “on or about” date with a short adjournment window, pre-construction contracts require buyers to wait until the building is complete. This can leave buyers stuck for years with their deposit locked up and limited options to cancel.
Anticipated Dates and Outside Dates
Offering Plans list two dates. The Anticipated First Closing Date is a nonbinding estimate used for marketing. The Outside Date is the only date with legal effect. If the building still isn’t ready by the Outside Date, the buyer can rescind the contract and recover the deposit.
Sponsors often place the Outside Date far into the future to protect against delays. A buyer who signs in early 2025 may see an Anticipated Date of mid-2025 but learn that the Outside Date is mid-2027. If delays occur, the buyer must wait until the Outside Date before having any right to cancel. Construction delays can stem from various issues, including permit processing times at the New York City Department of Buildings, which oversees all construction activity and Certificate of Occupancy issuances throughout Manhattan and the other boroughs.
Force Majeure Expansion and Delay Extensions
Force Majeure clauses excuse performance delays caused by events beyond the Sponsor’s control. These once applied mainly to strikes or natural disasters. After the COVID period, many Sponsors expanded the list to include pandemics, government restrictions, supply chain shortages, and labor issues.
A broad Force Majeure clause can extend the Outside Date and undermine the buyer’s exit rights. A Sponsor can claim months of tolling for material delays or labor shortages, prolonging the contract indefinitely.
Buyers can limit this risk by negotiating:
- A cap on how long Force Majeure can extend the Outside Date
- A requirement that the Sponsor give prompt written notice of the event
These provisions help prevent retroactive or open-ended extensions.
Time of the Essence and Interest Rate Risk
In New York, a closing date is not binding unless the contract states that Time is of the Essence. Without this language, either party may request a reasonable adjournment, often about 30 days. In a high-interest-rate environment, even a short delay can cause a mortgage rate lock to expire, which can be costly to extend.
If the Sponsor causes the delay, they usually don’t cover the buyer’s extension fees unless the contract requires it. If the buyer causes a delay, contracts often impose daily penalties based on a percentage of the purchase price.
Buyers can mitigate this risk by negotiating a funding contingency or a clause requiring the Sponsor to contribute to rate lock extension fees when the Sponsor is responsible for the delay.
Governance Limbo, Non-Warrantability, and Zombie Condos
The long-term value of a condominium depends on the financial stability and management of the building. In new developments, the shift from Sponsor control to owner control is a sensitive period. During this time, buyers face two major risks: the building becoming non-warrantable and the Sponsor retaining control over key decisions.
The Non-Warrantable Trap and Zombie Condos
A condominium must be warrantable for buyers and future purchasers to obtain conventional financing. Fannie Mae and Freddie Mac require that a building meet several criteria. A building may become non-warrantable if:
- The Sponsor still owns more than 10 to 25 percent of the units
- Commercial space exceeds roughly 25 to 35 percent of the building
- Too many units are rented rather than owner-occupied
- The building is involved in construction defect litigation
A major risk arises when Sponsors hold unsold inventory and choose to rent units instead of selling them. High rental concentration can cause the building to fail lender requirements. Once this happens, buyers cannot obtain mortgages, and existing owners cannot refinance. The building becomes a Zombie Condo, where units sell only for cash and property values fall. This issue has affected buildings throughout Manhattan, including developments in neighborhoods like Murray Hill, Gramercy, and the Financial District, where slower absorption rates have led Sponsors to convert units to rentals.
Sponsor Control and Budget Shortfalls
Sponsors usually control the Board of Managers until a certain percentage of units are sold or a set number of years have passed. This Sponsor Control Period presents several challenges.
- Understated Budgets: Sponsors often project low common charges in the Offering Plan to make the building appear more affordable. After owners take control and adopt a realistic budget, common charges may rise by 20 to 30 percent.
- Conflicts of Interest: A Sponsor-controlled board is unlikely to pursue claims for construction defects in common areas such as hallways, elevators, roofs, and mechanical systems. Delays in repairs shift responsibility to owners after the Sponsor exits the building.
- Ongoing Veto Rights: Even after losing the majority, some Sponsors retain veto authority as long as they own at least one unit. This can restrict the board’s ability to approve assessments or capital improvements.
- Due Diligence Tips: Buyers should review the Special Risks section of the Offering Plan to confirm:
- The length of the Sponsor Control Period
- Whether the Sponsor can freely rent unsold units
- Whether the Sponsor retains veto power after turnover
These details directly influence the building’s financial health and financing eligibility. Offering Plans are filed with the New York State Attorney General’s Office, which reviews and approves all condominium and cooperative offering documents before sales can begin.
The Tax Abatement Cliff and Local Law 97
For many years, the 421-a tax abatement reduced property taxes for new condominium owners and helped drive demand. With 421-a now expired and its replacement, 485-x, far more restrictive, buyers face greater uncertainty around future tax burdens. At the same time, new environmental rules create additional financial exposure for buildings that fail to meet energy standards.
| Risk | Where it appears | What to do before signing |
|---|---|---|
| Closing costs shifted to buyer | Contract rider and offering plan closing cost section | List every buyer-paid fee, confirm who pays transfer taxes, and put any concessions in writing in the rider |
| Square footage mismatch | Offering plan unit measurement definitions and floor plan disclaimers | Verify how square footage is measured, consider independent measurement, and add a cancellation or credit right if the actual area differs beyond an agreed percentage |
| Delays with limited exit rights | Offering plan timeline, outside date clause, force majeure clause | Confirm the outside date, limit force majeure extensions, and require written notice of delay events |
| Financing risk and sponsor control | Board control provisions, rental and unsold unit rights, litigation disclosures | Confirm when owners take control, whether the sponsor can rent unsold units, and whether building conditions could restrict refinancing or resale financing |
| Tax and compliance cost exposure | Tax benefit statements, energy and emissions compliance disclosures | Confirm any tax benefit eligibility in writing and request the building’s compliance plan and projected impact on common charges or assessments |
The Expiration of 421-a and the Risk of Losing Benefits
The 421-a program ended for projects that began construction after June 15, 2022. Eligible projects that started earlier must finish construction by June 15, 2031, to receive the abatement.
Many buyers assume new buildings automatically qualify, but this is not guaranteed. If a project fails to meet the commencement or completion deadlines, the abatement disappears entirely. The buyer then pays full property taxes from the start. In New York City, this difference can amount to thousands of dollars each month and can significantly reduce resale value.
Buildings across Manhattan, from luxury towers in Midtown to new developments in Lower Manhattan and emerging projects on the Upper East Side, face varying degrees of exposure depending on when construction commenced and whether timelines can realistically be met. Tax assessments and abatement eligibility are determined by the New York City Department of Finance, which administers property tax programs citywide. Buyers should confirm whether the project has vested for 421-a benefits and whether the completion timeline is realistic.
The Restrictive Nature of 485-x for Condominiums
The 485-x program has strict rules for condo projects. Under Affordability Option D, a project qualifies only if:
- The average assessed value does not exceed $89 per square foot
- The owner occupies the unit as a primary residence for five years
The assessment cap is so low that most new condos in Brooklyn, Queens, and Manhattan won’t qualify. Investor-owned units also cannot benefit from the program due to the primary residence requirement. This creates a market where similar units may have very different tax burdens, depending on eligibility.
Buyers shouldn’t assume any new condo will qualify unless the Sponsor clearly demonstrates that the project meets the assessment threshold.
Local Law 97 and Carbon Penalty Exposure
Local Law 97 sets strict carbon emission limits for buildings larger than 25,000 square feet. The first limits began in 2024, and more demanding limits arrive in 2030. Many new luxury towers, especially those with large glass facades, struggle to meet these standards due to poor insulation.
If a building exceeds its emissions cap, it faces penalties of $268 per metric ton of carbon. These fines are charged to the building and passed through to unit owners as increased common charges or special assessments. In some buildings, the total penalties may reach tens or hundreds of thousands of dollars per year. This concern is particularly acute for glass towers in neighborhoods like Hudson Yards, Hell’s Kitchen, and Billionaires’ Row along 57th Street, where architectural designs prioritize views over energy efficiency.
Non-compliant buildings may also need costly retrofits, such as upgraded windows, improved insulation, or heating system conversions. These projects can lead to large one-time assessments. Compliance is monitored by the New York City Department of Buildings, which enforces Local Law 97 and assesses penalties for non-compliant properties.
Buyers should request energy projections, engineering reports, and the building’s expected Local Law 97 compliance plan to understand future exposure.
Don’t Let Hidden Risks Undermine Your Purchase
Buying a new construction condo in New York City offers the promise of modern design, fresh amenities, and long-term value, but it also carries legal and financial risks that are often hidden in the fine print. From transfer tax shifts to unclear timelines, governance issues, and long-term environmental liabilities, new development contracts require careful review and strategic negotiation. Taking the time to understand these risks can save buyers from costly surprises and ensure that the purchase aligns with both their financial goals and expectations.
If you’re considering a new development purchase or want clarity on a contract already in progress, consulting a skilled Manhattan condo real estate attorney is essential. A knowledgeable lawyer can help you evaluate the Offering Plan, negotiate critical protections, and safeguard your investment at every stage of the process. For trusted guidance, contact Avenue Law Firm at (212) 729-4090 to speak with an experienced attorney who can help you make an informed and confident decision.
