Condominiums and Cooperatives

Exam rule

A condominium owner receives a deed to real property. The ownership has two connected parts: the unit described in the declaration and deed, and an undivided interest in the common elements. The statute calls that share the common interest, and it cannot normally be separated from the unit. The unit owner has exclusive possession of the unit, and shares the common elements with everyone else. Common elements can include land, roofs, halls, stairs, foundations and building systems, and the declaration defines the actual boundaries for that particular project. It may also create limited common elements. These serve one unit or a smaller group, although they remain common elements, and a balcony, terrace, parking space or storage area may be one of them. Never classify one from appearance alone. Read the declaration and filed floor plans. The percentage of common interest affects voting, common expenses and rights in common profits. Owners cannot seek partition of the common elements like ordinary tenants in common. The condominium form keeps the shared property joined to the units. Covenants, conditions and restrictions are often called CCRs, and they may appear in the declaration, bylaws or recorded documents. They control use. They cannot override law. A cooperative looks similar from the street. The ownership form is different. A cooperative resident receives shares and a proprietary lease, not a unit deed.

Exam rule

The declaration creates the condominium when it is recorded, describing the land, buildings, units and common elements, and stating each unit's common interest. The declaration is filed with the Department of State after recording. The bylaws supply the operating rules, covering the board, meetings, voting, budgets, common charges, insurance and restrictions. A board of managers acts for the condominium, and owners elect that board under the governing documents. The sponsor usually selects the first board and managing agent in a new project, and the offering plan must explain those choices and any sponsor relationship. Part 20 distinguishes voting control from expense vetoes. A new-condominium plan must warn of a special risk if sponsor voting control continues beyond the earlier threshold. One threshold is two years after the first unit closes. The other arrives when unsold units represent less than 50 percent of the common interests. This measures common interests, not the number of units sold. It is a disclosure rule, not an automatic end to control. The plan must explain the actual turnover terms. It must provide an election meeting within 30 days after the control period ends. Check whether the bylaws provide for an independent owner-occupant majority after sponsor control ends, because if they do not, the plan must warn of that special risk too. The sponsor cannot veto Schedule B expenses or costs required by law, nor costs required by a violation notice or an insurer's work order. The plan may permit a veto over other expenses, but that power has an outside limit. One cutoff is five years after the first closing. The other occurs when unsold units represent less than 25 percent of common interests. The earlier cutoff controls. Do not import Part 21's separate cooperative rules. The governing documents decide the exact voting and removal rules. Common expenses normally follow each unit's common interest, and the board collects them as common charges. The board must keep detailed receipts and expenditure records, and unit owners may examine them at convenient hours. Limited common element costs may receive different treatment when the documents lawfully provide it. Bylaws may regulate sales, leasing, alterations and conduct, but they cannot authorize unlawful discrimination. Always separate board authority from sponsor authority. The sponsor sells under the plan. The board manages under the declaration and bylaws.

Exam rule

A sponsor must file an offering plan before making a public offer. New condominiums generally use Part 20, new cooperatives generally use Part 21, and occupied conversions use different parts. Filing is not approval of the investment. It means the disclosure was filed under the governing rules. Read the plan, every amendment and the purchase agreement before signing. Start with the special-risk section, then check Schedule A, the budget, taxes, common charges, closing costs and sponsor rights. Compare the stated unit area with the floor plan and the measurement method, then check the property description, finishes, appliances, amenities and completion schedule. A model unit or rendering is not a promise. Put every material promise in the plan, the contract or a signed rider. The plan must disclose sponsor control, the managing agreement and material sponsor ties. Part 20 requires a filed amendment for advertised price changes, for changes across a line of units or models, and for an individual price increase. The plan may permit price negotiation. A sponsor can then lower the price for one buyer without a price amendment. CPS-1 covers new, vacant or nonresidential cooperative and condominium projects, while occupied residential buildings use the separate CPS-11 process. During accepted CPS-1 market testing, a sponsor may seek interest. The current policy permits no reservation, binding or nonbinding, and no deposit before the plan is accepted for filing. This corrects the older syllabus wording, which describes letters of intent as written offers to reserve units. A certificate of occupancy confirms lawful occupancy under the code process, while a temporary certificate may carry limits and an expiration date. Lenders often require acceptable occupancy proof before funding. A closing date in a new project may depend on effectiveness, construction, occupancy approval and lender conditions. Never promise the date without reading the contract. New York City's preservation-plan route is narrow and local. It is not a statewide shortcut.

Exam rule

A condominium closing transfers the unit and its common interest by deed, and that deed must identify both the condominium and the unit. A title search checks the deed chain, declaration, amendments, taxes, judgments and recorded liens, and it should confirm the unit's common interest as well. At a sponsor's first conveyance, any blanket mortgage or lien needs the release or the protection that the statute requires. Title insurance covers the title risks the policy states, and it does not insure physical condition or every future board decision. Review the contract for a right of first refusal. It exists only when the governing documents create it, and it usually lets the board or its designee match an accepted deal. Flipping and simultaneous closings depend on sponsor policy, contract rights, financing and closing logistics. They are not automatic rights. Separate closing costs by party and source, because a buyer may face loan, appraisal, legal, inspection, title, recording and adjustment costs. A financed condo buyer may pay mortgage recording tax. A cooperative share loan uses different collateral, so there is normally no mortgage to record on the apartment itself. Seller costs can include transfer taxes, brokerage, legal fees, lien payoff and document fees. A sponsor may shift stated costs to a buyer if the filed plan and contract disclose them. Prorations can cover common charges and real estate taxes. In an ordinary fee condominium, each unit and its common interest are generally assessed as a separate parcel. Under Real Property Law section 339-y(1)(b), the aggregate unit assessments generally cannot exceed the valuation of the property as one parcel. That ceiling has statutory exceptions, including Class 1 property and some converted units where a local law removes it. Real Property Tax Law section 581(1)(a) also generally limits the assessment of cooperative and condominium property to what it would be without that ownership form, but its own exceptions apply. Check the property class and local law before treating either ceiling as universal. Unpaid common charges can create a board lien. In a residential condominium, unit taxes and a first mortgage of record take priority over it. So do qualifying subordinate mortgages held by the public agencies named in section 339-z. An exclusively nonresidential condominium may have different mortgage priority under its declaration. The common-charge lien lasts six years from filing unless paid sooner. Foreclosure requires a court action in the board's name, and Section 339-aa requires notice at least 90 days before it. Send that notice to the property and to any other address of record. The notice must use 14-point type, and it must state the intent to foreclose, the property address and the specific amount due. A buyer should obtain the board's common-charge statement before closing, and should know that New York's additional transfer tax applies at one million dollars or more. The buyer normally pays the one percent state tax. New York City can impose added graduated taxes at higher prices. Check the local charges for the actual property. Tax deductions depend on current federal rules and the buyer's facts. Send that question to a tax professional. Lenders review income, debt, assets, credit, down payment, loan-to-value ratio and reserves. Salary, commission, bonus, business, rental, investment, trust, support and benefit income can each need different proof. Assets can include cash, securities, retirement funds, gifts, trusts, real estate and business interests. No ratio guarantees approval. A condominium board also lacks automatic power to reject a buyer. Any approval or first-refusal power must come from the documents.

Exam rule

A cooperative corporation owns or leases the land and building, and the purchaser buys shares in that corporation which are allocated to a named apartment. A proprietary lease gives the shareholder the right to occupy that apartment. The buyer does not receive a deed to the apartment. The shareholder therefore holds personal property and lease rights, not fee simple title to a unit. The corporation may own the building in fee simple, or it may hold a long ground lease. That building-level title does not become the shareholder's title. The shareholder has two roles at once, as an owner of corporate shares and as a tenant under the proprietary lease. The stock certificate proves the shares. The proprietary lease states possession, maintenance, transfers, subletting, defaults and repair duties. Read both together. Maintenance charges usually follow the number of shares allocated to the apartment, and they support building taxes, operations, insurance, debt service and reserves. The corporation has one property-tax bill and may have an underlying mortgage. The shareholder may also have a separate share loan. These are different debts. Shareholders elect directors under the bylaws. The board acts for the corporation. House rules govern daily conduct, while the proprietary lease controls larger occupancy rights. An alteration agreement can set plans, insurance, contractor and restoration duties for apartment work. Always identify the document that controls the issue. Similar words can have different jobs.

Exam rule

Cooperative due diligence has three layers. The apartment, the corporation and the buyer's own rights each need review. Start with the current financial statements, and with several prior years when they are available. The balance sheet shows cash, reserves, receivables, debt and other obligations, while the income statement compares maintenance and other revenue with operating costs. Notes can reveal litigation, deferred repairs, tax issues and accounting risks that the face of the statement hides. Compare the budget with actual results, then study maintenance increases and the special assessment history. Large arrears may signal collection trouble. A small reserve is not automatically fatal. It becomes serious when major work is near. Review the underlying mortgage balance, interest rate, maturity date and balloon risk, because refinancing can raise maintenance even for a cash buyer. Check the sponsor's arrears on unsold shares. Read recent board and shareholder minutes, looking for facade, roof, elevator, boiler, plumbing and electrical work. Also look for insurance problems, violations, lawsuits, leaks and planned assessments. Minutes may be incomplete, so compare them with financial notes and inspections. Obtain the current proprietary lease, bylaws and house rules, because the original offering plan may contain old versions. Review later amendments and current policies. The proprietary lease controls use, sale, subletting, defaults and repairs, while the house rules cover daily conduct. An alteration agreement controls proposed work. The stock certificate identifies the shares. The offering plan explains the original deal and sponsor promises. A resale offering plan may no longer describe present conditions, and the Attorney General does not regulate an ordinary owner resale the way it regulates a sponsor sale. The contract and current facts become critical. Verify maintenance, assessments and building approvals in writing, every time. Use an attorney, accountant, inspector or engineer when the issue needs that skill.

Exam rule

A cooperative sponsor files an offering plan before offering shares to the public. Part 21 generally covers new or vacant cooperative projects, and Part 18 generally covers occupied residential conversions. The first conversion draft is often called the red herring, and tenants of record receive it when the sponsor submits the plan. Filing is disclosure, not government approval of the investment. Read the plan, amendments, subscription agreement and sponsor history. Check special risks, the budget, the underlying mortgage, reserve funding and sponsor obligations, then review the proprietary lease, bylaws, house rules and management agreement in the plan. Compare written construction promises with the delivered condition. Oral sales claims do not replace the filed promise. Sponsor control varies with the project and governing plan. The Attorney General's general board guide describes a common outside limit. It is over half the shares sold or five years after closing, whichever comes first. Part 21 imposes a stricter limit for new or vacant cooperative projects. Sponsor voting control or expense veto power cannot continue beyond the earlier of two events. One is two years after closing, when the property passes to the apartment corporation, and the other is when 50 percent of units have closed. Read the actual plan because project type matters. Do not use that five-year overview to extend Part 21 control. For New York City non-eviction plans submitted on or after June 15, 2019, the general threshold is purchase agreements for at least 51 percent of all dwelling units. The buyers must be bona fide tenants in occupancy when the plan was accepted for filing. Earlier plans can follow a 15 percent threshold, so check when the sponsor submitted the plan before using either figure. A narrow exception applies to the smallest buildings, those with five or fewer units. The sponsor must offer a unit that the sponsor or an immediate family member has occupied, and that occupancy must already have lasted at least two years. This route requires purchase agreements for at least 15 percent of all dwelling units. Buyers may be bona fide tenants in occupancy. They may also be bona fide purchasers intending occupancy by themselves or immediate family when the unit becomes vacant. For plans submitted on or after June 15, 2019, a tenant in occupancy when the plan was accepted for filing has an exclusive 90-day purchase period after the filed plan is presented. The tenant can then match an outside contract during an additional six months, if the tenant acts within 15 days of the required notice. A non-purchasing tenant cannot be evicted merely for declining to buy. Nonpayment and other permitted breaches remain separate grounds. Unsold shares remain important after closing, because a holder of unsold shares may have broader sale or sublet rights. Those differences must be disclosed. Part 21 also requires sponsor protection for maintenance and assessments on unsold shares, because sponsor arrears can hurt cash flow and threaten the building. Ask how many unsold shares remain, who owns them and whether payments are current. The Attorney General may address sponsor promises and offering violations, but does not settle every private board dispute. Contract rights and private counsel may control after an ordinary resale.

Exam rule

A cooperative board package supports the buyer's request for approval, and its requirements come from the building's documents and current application rather than one statewide checklist. The syllabus lists common items. They include the application, signed contract, verified financial statement and employment letter, along with personal and business references, tax returns and credit authorization. Three years of tax returns is a syllabus recommendation, not a universal statute. The package may also request bank, investment, debt, gift and housing records. The agent should obtain the building's current checklist and submission rules, organize the requested items, reconcile the numbers and protect private data. Before the interview, the buyer should be able to explain the financial picture the completed package presents. Many boards meet monthly, though that is a planning point rather than a legal rule. The contract should address board approval and timing. The board reviews financial ability and compliance with lawful, consistently applied admission policies. Even when a board has discretion, federal, state and local fair housing rules still apply. A licensee should not help a board seek protected-class information or guess why it rejected an applicant. A buyer must answer lawful questions honestly. Total disclosure does not require surrendering protected information that the board cannot lawfully demand. Primary-residence and sublet rules come from the proprietary lease, from the bylaws and from the house rules. Some buildings prohibit sublets outright, while others limit the years, the fees or the approval that a sublet needs. Sponsor shares and holders of unsold shares may have broader rights. Read the plan before promising equal treatment. A flip tax is a transfer fee, not a property tax. The governing documents must authorize it. The documents also state who pays and how it is calculated. An alteration agreement is separate. It controls renovation plans, insurance, access, work hours, deposits and restoration duties.

Exam rule

A cooperative buyer does not mortgage a deeded apartment. The buyer grants a security interest in the cooperative interest, which includes the shares and the related possession rights. Article 9 of the Uniform Commercial Code governs how that interest is perfected. A financing statement identifies the debtor, secured party and collateral, and for a cooperative interest it also identifies the unit and street address. An addendum changes the required filing details, not the local filing office, and section 9-502(b) gives the real-property details needed without one. Section 9-502(e) gives the contents of that addendum. A cooperative lien search checks filed claims against the shares and lease rights, which makes it different from a condominium title search. The lender also reviews the corporation, its underlying mortgage, its insurance, its finances and its governing documents. A recognition agreement coordinates the borrower, lender and cooperative. It commonly gives the lender notice of shareholder default, and it may provide cure rights and rules for a lender transfer. It does not turn the shares into real property, and it never has. At closing the parties transfer the stock certificate and assign the proprietary lease, and the corporation records its consent and updates its books. Loan documents create and perfect the lender's security. Payoff and lien-release documents clear the seller's share loan. Maintenance, assessments, transfer fees and flip taxes must all be settled under the contract. A share loan normally does not incur mortgage recording tax on the apartment. New York transfer tax can still reach the transfer. The corporation's underlying mortgage remains separate from the buyer's share loan, and even a cash buyer still meets that building-level debt through maintenance. Lender approval and board approval are separate, and each can apply different income, debt, loan-to-value and reserve standards. Alternative income documents do not mean no underwriting. For covered loans, the federal ability-to-repay rule requires the creditor to make a reasonable, good-faith determination. It must also verify the income or assets relied on. Coverage and exceptions depend on the loan, not its marketing label.

Exam rule

A condop has two ownership layers. The building is divided into condominium units, where one unit often contains the residential cooperative and another may contain commercial or garage space. The cooperative corporation owns the residential condominium unit, and a resident buys cooperative shares and a proprietary lease inside it. The resident does not receive a condominium deed. The outer condominium has a declaration, bylaws, common elements and common charges, while the inner cooperative has corporate bylaws, a proprietary lease, maintenance and a board. A buyer must review both layers. Outer expenses and commercial rights can affect the residential corporation. Inner rules control the resident's use, transfer and subletting. Condops often separate commercial economics from residential cooperative operations. The syllabus calls the tax issue the 80/20 rule. Current federal law gives a cooperative housing corporation three alternative tests. Meeting one or more can satisfy that part of the definition. The first test uses gross income from tenant-stockholders at 80 percent or more. The second test concerns total square footage. At least 80 percent must be used or available to tenant-stockholders for residential or related purposes. This must hold at all times during the taxable year. The third test concerns annual expenditures. At least 90 percent must acquire, construct, manage, maintain or care for the property for tenant-stockholders' benefit. Other section 216 requirements still apply, including the stock and occupancy rules. The old 80/20 label can hide the other two routes. A condominium buyer owns real property and usually gets a unit tax bill, while a cooperative buyer owns personal property and pays maintenance to the corporation. A condo loan is secured by a mortgage on the unit. A co-op loan is secured by shares and lease rights. Condominium resales usually have less board screening. Cooperative transfers often require board approval. Both structures can have boards, rules, transfer fees, assessments and major repair risk. Neither structure is always better. Match the buyer's needs with the documents, financing, costs, control and resale rules.