When handling a co-op transaction in New York, it’s important to recognize that you’re not simply purchasing an apartment but rather becoming a corporate shareholder in a residential building. Consequently, buying a co-op involves a distinct set of considerations compared to acquiring a single-family home or condo. Each co-op may have its own unique peculiarities that should be understood before engaging in the process.
In order to facilitate a smooth experience, it is recommended to enlist the services of a skilled New York co-op real estate attorney. At Sishodia PLLC, our experienced Manhattan co-op real estate lawyers can help address your questions and concerns, providing the necessary insights to make well-informed decisions that you won’t later regret. Our team can also assist in managing any complex matters associated with purchasing a co-op in New York, such as preparing for a co-op board interview. Contact us today at (833) 616-4646 to schedule a consultation.
What to Ask When Buying a Co-op
For potential buyers, especially in the competitive New York market, understanding the nuances of each co-op’s rules, regulations, financial health, and expectations is crucial. Below are critical questions you should ask before committing to buy a co-op in New York.
What Are the Board’s Financial Requirements?
When you are considering a co-op arrangement, you will appear before a board of directors who will have the authority to approve or deny you depending on their criteria and by-laws. A co-op board of directors can be as financially demanding as a mortgage lender.
Consequently, they may require an applicant to fill out a REBNY financial statement to prove their financial capability and may impose other financial requirements. Many co-ops will have strict debt-to-income requirements and want to see applicants with a minimum of a couple of years of mortgage and maintenance payments available to ensure financial liquidity.
What Does Coop Due Diligence Include?
When you are purchasing a coop unit in New York City, it is important to do thorough due diligence. Due diligence includes a review of the Offering Plan, house rules, Building By-Laws, the last two years of building financials, and building board minutes. A knowledgeable and experienced real estate attorney can guide you through due diligence findings and advise on the risks involved, empowering you to make an educated decision as a purchaser.
How Often Does the Board Reject Applicants?
Although it makes sense that a board will want to exercise care in who it approves, some boards are oppressive in the rules department. If there are indications that resales struggle in the building, you should consider that a red flag.
What Are Potential Reasons for a Co-op Board Rejection?
Practice shows that co-op boards do not usually give a reason when rejecting purchasers. However, there are several reasons known to knowledgeable real estate attorneys and experienced real estate brokers. Among them are: purchaser financial issues, liquidity, high debt-to-income ratio, bad credit, job history, Pied-a-Terre, guarantor issues, or a low purchase price.
How Often Do the Maintenance Fees Go Up?
As a shareholder, you will be paying a maintenance fee to help pay your proportionate share of the upkeep of the building. The board of directors should be financially savvy enough to ensure that the cost of maintenance is reasonable and has not continued to skyrocket.
What Kind of Sales Restrictions Does the Co-op Have?
As a buyer, you should always consider the future of any real estate transaction. Many co-ops are highly restrictive and rule-oriented. How easy will it be to sell the unit if and when you decide to move on? The more sales restrictions that a co-op has regarding how you can market it and who can buy a unit, the fewer options you will have if you want to sell it down the road.
Is There a Flip Tax?
Is there a flip tax that you may be subject to? While not all co-ops charge a flip tax, some charge various percentages of the purchase price, a percentage of the gain, or a per-share amount. And, if you are not subject to one as a buyer, you should know if you will be subject to one as a seller should you decide to sell the unit at a future time.
What Is The Sublet Policy?
Most co-ops have some form of sublet restrictions. While some can be very flexible, others can be extremely restrictive. Some may also charge a sublet fee, either monthly or annually. You will want this information in case you ever are in a position where you may have to let the unit out temporarily.
What Is the Pet Policy?
If you have a pet, you should have your attorney check on the building’s pet policy during the due diligence to find out if the building allows pets, or has restrictions on quantities and sizes.
What Is The Co-op Alteration Policy?
If you are purchasing your co-op with an idea to renovate or combine the units after closing or at a later date in the future, you should be prepared to meet with your building’s board members and building managers to negotiate the terms of the renovation and even the plans. You may need to have an architect or engineer involved. Most of the coops will not allow shareholders to install a washer and dryer in the unit or a jacuzzi bath. Some coops will not allow a combination of two units.
Each of these questions can reveal crucial details about the financial and legal obligations associated with a particular co-op, helping you make a well-informed decision. Another consideration is to consult with a skilled Manhattan co-op real estate lawyer to acquire professional advice and help protect your interests throughout the buying process.
| Questions To Ask Before Buying a Co-op in New York | Details |
|---|---|
| What are the board’s financial requirements? | Co-op boards may require a financial statement, debt-to-income ratios, and proof of financial capability. |
| What does co-op due diligence include? | Due diligence includes reviewing the Offering Plan, house rules, building by-laws, financials, and board minutes. |
| How often does the board reject applicants? What are potential reasons for a co-op board rejection? | Boards vary in approval rates. Possible reasons for rejection include financial issues, high debt-to-income ratio, bad credit, job history, Pied-a-Terre status, guarantor requirements, or low purchase price. |
| How often do maintenance fees go up? | Maintenance fees should be reasonable and not excessively increasing over time. |
| What kind of sales restrictions does the co-op have? | Co-ops with more sales restrictions limit your options for selling the unit in the future. |
| Is there a flip tax? What is their sublet policy? | Some co-ops charge a flip tax. Co-ops may have restrictions on subletting, including fees and limitations on duration. |
| What is the pet policy? What is the coop alteration policy? | Check if pets are allowed and if there are any restrictions. Find out if renovations or combining units are allowed. |
Risks of Buying a Co-op
When considering purchasing a co-op in New York, it’s important to be aware of several potential risks that could impact your living situation and finances. One significant concern is the possibility of dealing with an incompetent co-op board. Unlike individual ownership in a condo, co-op residents share collective ownership and rely heavily on the board to manage the building effectively, address concerns, and communicate key decisions. A board that fails in these responsibilities can affect daily life and the overall value of your investment.
Another risk involves poor building management, which can lead to financial mismanagement or even unethical activities. Shady dealings with contractors and overpriced contracts are issues that can arise, compromising the integrity of building operations and potentially leading to unexpected costs for repairs and maintenance.
Strict rules and regulations in co-ops, especially around subletting, can also pose challenges. These regulations might restrict your ability to rent out your apartment, which can be a significant drawback if you plan to leverage the rental market without selling your property. This aspect is crucial to consider if flexibility in property use is important to you.
Additionally, the community aspect of a co-op, while often seen as a benefit, can turn into a risk if you end up with difficult neighbors. Living in close quarters with others means that personality clashes or disagreements can have a direct impact on your living environment.
Finally, be prepared for potential financial surprises such as special assessments. If the building’s reserve funds are insufficient during emergencies, you might face additional charges that can strain your budget.
Engaging a knowledgeable co-op real estate lawyer can help weigh the potential benefits and drawbacks, manage the purchasing process effectively, and find a co-op that suits one’s needs and future goals. Contact Sishodia PLLC today to speak with an experienced Manhattan co-op real estate lawyer.
Is Coop Maintenance Tax Deductible?
Maintenance consists of the HOA fees to coop and a portion of Real Estate Tax. Have your real estate attorney confirm the % of the maintenance that is allocated to taxes, as this is a portion that you’ll be able to deduct on your income tax return together with any building assessment. The special assessment is tax-deductible if it is for maintenance and repairs.
What Is a Condop?
You may come across coops with relaxed rules that do not have a Coop Board approval process and instead have a waiver of the right of first refusal similar to condo requirements.
What to Expect at the Coop Board Interview
Just like a job interview, a coop board interview requires preparation. Your Coop board may ask you to appear with all the occupants for the Premisses, even if they are not a part of the purchase application. If you have a pet, your board will likely want to see your pet at the interview with you. As Covid-19 hit New York, most Coop Board Interviews have been conducted remotely via Zoom meetings. Purchasers should also know that coop boards are notorious for asking personal and intimidating questions or requiring you to explain some of your life decisions.
Can a Co-op Board Evict a Shareholder?
A landmark court case has opened the door for the removal of disruptive shareholders from co-ops. This groundbreaking ruling empowers co-op boards to address abusive neighbors, setting them apart from condos that face limitations in dealing with problematic residents. Many co-op proprietary leases contain provisions that enable eviction in response to objectionable behavior, either through a board or shareholder vote.
To initiate the eviction process, it is essential to confirm the existence of a relevant clause in the proprietary lease, typically found in paragraph 31(f) of standard-form leases. Prior to proceeding with eviction, it is generally necessary to give the shareholder an opportunity to rectify their behavior. This involves issuing a written notice that clearly outlines the violations and requests correction.
In such civil cases, there is no obligation to inform the shareholder of their rights. The primary focus should be on addressing the objectionable behavior and seeking a resolution. To strengthen the eviction case, it is crucial to gather evidence and organize the facts. This includes creating a written timeline of the infractions, retaining copies of notices sent to the shareholder, and obtaining statements from witnesses who have observed the objectionable behavior.
Well-documented evidence, as demonstrated in the Pullman case, can support the board’s decision. Conducting a meeting in accordance with the co-op’s procedures is vital. It is necessary to adhere to the by-laws governing board and shareholder meetings, including providing proper notice. The meeting notice should explicitly state its purpose, specifically mentioning that it will address and vote on a resolution to terminate the proprietary lease of the tenant-shareholder, authorize actions to recover the apartment, and cancel the share certificate.
During the meeting, the accused shareholder should be given an opportunity to present their case. It is important to document these opportunities, either through recordings or accurate note-taking. If required, witnesses who can substantiate the charges should also be present. Following the meeting, a resolution should be drafted, outlining the board’s decision and the grounds supported by testimony and evidence.
Acquiring Experienced Legal Assistance at Sishodia PLLC
Buying a unit in a co-op is quite different from buying other real estate, underscoring the importance of experienced legal assistance to make informed decisions. At Sishodia PLLC, our team of Manhattan co-op real estate lawyers have extensive experience with co-ops and handling their often complex issues. We can help you maneuver a co-op transaction that fits your needs and lifestyle. Contact us today at (833) 616-4646 or schedule a consultation through our online contact form.
