How to Purchase a NYC Co-op: Cooperative Ownership Structure

 Structure of a Cooperative (Co-op)

Residential real estate in New York can be classified into three main categories:

  1. Cooperative
  2. Condominiums
  3. Townhouses/Brownstones and multi-family

Cooperatives have a distinctive ownership structure. As a legal entity, a Cooperative is a single corporation that owns the entire building. A Cooperative forms when people join to own or control the housing and related facilities in which they live. When purchasing a Cooperative apartment, a Purchaser is not acquiring real estate per se, as that term is legally defined; rather they receive a proportionate number of shares of stock in a Cooperative corporation. Therefore, unlike a condominium purchase, Purchasers of a Cooperative do not obtain a deed to the apartment, but rather they receive documents that essentially equal a deed i.e. Stock Certificate and Proprietary Lease. As lessees, the shareholders pay a monthly maintenance. Upon Closing, the Stock Certificate and Proprietary Lease shall be given by the Corporation in the name of the Purchaser. The total shares are generally stated on one Stock Certificate and you receive generally a Proprietary Lease.

Advantages of Purchasing a Cooperative

There are various noteworthy advantages to owning a Cooperative:

  1.  The application process that Cooperatives use to “approve” and “disapprove” prospective owners protects present shareholders’ interest by approving only qualified candidates as future shareholders and your potential neighbors to ensure that a shareholder will continue to pay their “fair share”.
  2. Generally, Cooperative ownership provides a secure community. Cooperatives select future shareholders so you hopefully get a “desirable” neighbor. You have little to no control of who your neighbor will be in a Condominium.
  3. A portion of the monthly maintenance fee paid by a shareholder is tax deductible.
  4. Cooperative’s real estate taxes are generally lower than Condominium’s because the building is assessed as a whole instead of as individual units. Individual unit owners do not pay the Real estate taxes directly but rather same is a part of their maintenance.

Disadvantages of Purchasing a Cooperative

Yet, there are potentially major disadvantages to purchasing and owning a Cooperative, as the Cooperative Board seeks to maintain and raise the value of the property and building:

  1. Often, Boards demand a large cash down payment, as prospective Purchasers are usually required to make a pre-set down payment. There are Cooperatives that may require 50% and some of the most exclusive buildings may allow absolutely no financing
  2. Perhaps the most significant restriction is that Purchasers of a Cooperative unit cannot freely sublet. Most Cooperatives have strict policies on subletting. Normally, there is a fee for subletting and a limit of one to two years during a five to seven year period. This could be particularly unsuitable for individuals with professions that demand much travel or if one must suddenly relocate.
  3. Cooperative owners are not usually permitted to use apartments for professional or business purposes.   Also, having visitors of even family use the Cooperative when you the shareholder are not present may be very problematic.
  4. The Board must approve of nearly all renovations and changes to individual units. To have a chance at renovating, a Cooperative resident must complete an alteration agreement form. This agreement describes the terms under which the Cooperative gives permission to a shareholder before making any changes or improvements to the unit where shareholder resides.
  5. Cooperative owners who wish to sell their apartment must have the Purchaser approved by the Board through the sometimes tedious application process and many Cooperatives tend to also impose a “flip tax” to compensate for the inconvenience of someone new moving in. A flip tax being a fee paid to the Cooperative itself when a shareholder sells their unit.

More information on purchasing a cooperative in New York City

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