Compare Co-ops and Condos

Terms you need to know:

Sponsor: the developer or owner offering a building for sale as co-operative or condominium apartments. In a co-op, this entity continues, after conversion, to own any apartments which are not sold; the renters continue to be rent-controlled or rent-stabilized tenants and pay their rent to the sponsor. The sponsor pays maintenance to the co-op corporation on the shares allocated to these apartments just as owners pay the maintenance allocated to their own shares.

Offering Plan or “black book”: publication setting out the conditions which must be met for a building to convert to co-op or condo. This is prepared by the sponsor to be submitted to the State Attorney General and contains the by-laws and proprietary lease (for a co-op) outlining the rights and obligations of the shareholders and house rules which are imposed by the corporation on unit owners.

1. Individual owners own shares in the corporation and lease their apartments from the corporation (the proprietary lease). The co-op corporation owns the building, including the apartments, and (usually) the land. 1. The buyer purchases the actual apartment as well as undivided interest in the common areas of the building (lobby, hallways, driveways). The corporation does not own property.
2. Co-ops are governed by a Board of Directors which is required to follow the by-laws outlined in the offering plan. These by-laws set forth procedures and restrictions for issues such as subletting, selling and making alterations. 2. Condos are governed by a Board of Managers. The board follows the by-laws outlined in the offering plan. Condos typically do not restrict subletting but have some say in selling or making alterations to an apartment.
3. Corporation may have an underlying mortgage on the building. Each purchaser may have a separate mortgage on his apartment. 3. A condominium corporation does not own real property and will almost never have an underlying mortgage. Each purchaser may have a separate mortgage on his apartment.
4. The owner pays monthly maintenance charges that include the proportionate share of the corporationís real estate taxes, payments on the buildingís mortgage, and general maintenance on the building (i.e. staff salaries, fuel, real estate taxes, water, etc.) 4. The owner pays common charges for his unitís proportionate share of the cost of upkeep of the building and common areas. This includes staff salaries, fuel, taxes, water, etc. It does not include real estate taxes or mortgage interest for the building, so no portion of the common charge is tax deductible.
5. That portion of the maintenance charge designated for the corporation’s real estate taxes and mortgage interest is tax deductible for the individual owner. 5. Real estate taxes are assessed against each unit by the City and paid individually. These payments are tax deductible.
6. Apartment sales–i.e., transfers of ownership of shares–are subject to approval (except for sponsor-owned units) by the Board of Directors of the corporation and require a Purchase Application from the buyer. [go to What do Boards Want] 6. Some condo governing boards now require applications to purchase similar to those used by co-op boards. Condo boards have ìthe right of first refusalî; that is, they must be offered the property at the same purchase price as the potential buyer is prepared to pay. They must legally waive this right for a sale to proceed. [go to What do Boards Want]
7. Co-ops have the right to limit subletting; restrictions vary by building. 7. Condos usually allow sublets, but most have restrictions disallowing short leases.
8. Closing costs are lower than on a house or condo [see closing costs section]. A co-op sale is a simpler transfer of shares, which are considered personal property. 8. Closing costs are higher because sales involve a transfer of real property, so the applicable taxes and filing charges apply. [see closing costs section].
9. If a co-op needs a capital improvement, it has the option of tapping a reserve fund, levying an assessment on shareholders or increasing (or taking out) a mortgage. 9. Because a condominium corporation does not own real property, it usually must either use its reserve fund or levy an assessment on the owners to finance capital improvements. Mortgages are not generally available to condo corporations.
10. Many co-ops levy a transfer or flip tax on a seller. This may be based on either the number of shares owned, the net or the gross profit on the sale. (Details are available in the offering plan.) 10. A condominium may levy transfer taxes on sales.
11. Co-op boards usually limit the percentage of the asking price that you may finance. Most Upper West Side buildings, for example, allow 75-80% financing. 11. Condos do not regulate the amount of financing allowed. You can finance 100% if a bank will agree.

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