Cooperative vs. Condominium Ownership:

Apartment purchasers in Manhattan (New York City) are faced with two basic choices of ownership: cooperatives and condominiums. This page discusses the practical differences between those two forms.

Background

Up until the 1980s, apartment ownership in New York City was relatively uncommon. With some exceptions, of course, most people in New York rented in apartment buildings. Since the 1980s, the vast majority of apartment buildings have been converted into either cooperatives or condomiuniums. As is the case in any other 'rent vs. buy' real estate situation, ownership allows the owner to reconfigure the apartment to suit their needs, insulate themselves against rent hikes, and build ownership equity.

Cooperatives

Cooperatives are corporations. The Co-op Corporation owns the building and (usually) the land it sits on. The corporation makes mortgage payments and pays taxes, just as the owner of a house makes mortgage and tax payments. Cooperatives comprise roughly 75% of Manhattan's housing stock.

When you buy an Apartment in a Co-op, you're buying shares of stock in the Corporation. (In other words, when you buy a co-op apartment, you're not buying real estate at all, you're buying shares. The term 'real estate' is used loosely as an abstraction to describe apartments in any form.) The number of shares you receive is a function of the apartment's attributes (size, floor, views, and so forth). Along with the shares you receive comes a Proprietary Lease that entitles you to live in a particular apartment.

Note: In Hawaii, when you buy into a Co-operative, you get one (1) share of stock, and it doesn't matter (size, floor, view, and so forth) which apartment is covered by the Proprietary Lease.

Like any other Corporation, the Co-operative Housing Corporation is governed by a Board of Directors that is elected by shareholders. The board is usually comprised of an odd number of people, typically 5, 7, or 9. Depending on the by-laws, board terms usually run from 1 to 3 years. Every year, shareholders receive financial statements that discuss the building's operations and overall physical and fiscal health. Cooperative Corporations are governed by the same law as any other business corporation.

The rights and responsibilities of shareholders and board members are detailed in several important documents: the offering plan (prospectus) and amendments, by-laws, and the proprietary lease.

The offering plan (or Prospectus) is a legal document that must be filed with the state attorney general whenever securities are offered for sale. The 'securities' in this case are shares of co-op stock; for condominiums, securities are common interest allocations. The prospectus outlines the terms of sale and the specifications of the property being sold. The prospectus is often amended several times before any shares are actually sold. Once the conversion process is complete, the sponsor is required to amend the prospectus every year, informing shareholders of the sponsor's and building's financial health.

By-laws are the rules by which a Co-op or Condominium conducts its activities. By-laws can be amended with a two-thirds majority vote by shareholders. The co-op or condo 'house rules' are the rules by which individual shareholders and residents must conduct themselves. House rules can be amended by a simple majority vote.

Specific only to Co-ops, the Proprietary Lease details the rights of a shareholder to use his or her apartment. Changes to a proprietarty lease typically requires a two-thirds majority vote by shareholders.

Condominiums

Condominiums are not corporations. Condo buyers actually own the physical apartment they live in. They own real estate, not shares. Common areas in and around the building are jointly owned. Each condo owner has a common interest ownership--allocated by the worth of his or her apartment--in the common areas. The value of the building and land is divided up between individual apartment owners; therefore, there is no underlying mortgage on the building. Real estate taxes are also paid directly by individual owners. Because the building is not owned by the condominium association, it cannot be used as collateral on capital improvement loans without approval by 100% of the apartment owners. Condo buyers can secure a mortgage to buy their apartment. Mortgage interest and real estate taxes are deductible.

Like Co-ops, Condominiums are also overseen by an elected Board of Directors. But condo boards have much less power over individual apartment owners than co-op boards. Co-ops can refuse to sell for "any reason or no reason". Condo boards don't have that power. If a condo doesn't want to sell a unit to a particular individual, it can excercise its "right of first refusal" and purchase the unit itself. This is a very rare situation; in fact, I've heard of this occuring in only a couple of situations.

Condos also have no board approval process. If the condo waives its right of first refusal, the buyer needs only to secure financing in order to close the deal. Condos are much easier to rent--or sublet--than are co-ops. Again, there is no board approval process. The owner simply rents the unit out, perhaps filling out a few forms in the process.

Last modified: June 4, 2015

Click here to return: 

All information contained herein is obtained from sources deemed reliable, no representation is made as to the accuracy thereof, & it is submitted subject to errors, omissions, changes & withdrawals without notice.