Unit 7 - Common Interest Developments and Property Operations (6 Hours)
I. Condominiums: Real Property Ownership
A Condominium unit is a form of Fee Simple ownership of a specific unit (airspace) plus an undivided interest in Common Elements (halls, elevators, roof).
Key Documents and Governance:
The Offering Plan: A massive disclosure document required by the NY Attorney General. It includes floor plans, budgets, and "Special Risks" (like if the building is on a land lease).
Declaration: The legal document that creates the condo.
By-Laws: The rules governing the operation of the building, including how the Board of Managers is elected.
CPS-1 (Cooperative Policy Statement #1): A phase that allows a developer to test the market and take non-binding Letters of Intent before the full offering plan is approved.
Financial and Title Considerations:
Deed: Buyers receive a deed, just like a single-family home.
Right of First Refusal: Most condo boards cannot "reject" a buyer. Instead, they have the right to buy the unit themselves on the same terms. If they don't, the sale proceeds.
Taxes: Each unit is taxed individually. Owners pay Common Charges to the board and Real Estate Taxes directly to the municipality.
II. Cooperatives: Personal Property Ownership
A Cooperative (Co-op) is NOT real property. The building is owned by a Corporation. Residents own Shares of Stock in that corporation and receive a Proprietary Lease to live in a specific unit.
Ownership Structure:
Personal Property: Because you own stock, not land, a co-op is considered personal property.
Maintenance: One monthly check that covers building operations, the building's Underlying Mortgage, and Real Estate Taxes.
Board Approval: Co-op boards have vast power. They can reject a buyer for almost any reason as long as it isn't discriminatory (Fair Housing).
Due Diligence for Agents:
Board Minutes: Agents must review the last 1–2 years of minutes to look for mentions of upcoming Assessments (extra fees) or building issues.
Financial Statements: Review for a healthy Reserve Fund (the building’s savings) and the status of the underlying mortgage.
III. The Board Package and Interview
For Co-ops (and some Condos), the "Board Package" is the gatekeeper.
The Package Checklist:
Financial Statement: Usually a standard REBNY form detailing all assets/liabilities.
Tax Returns: Typically the last 2 years (verified by a 4506-C form).
Reference Letters: Professional and personal letters vouching for the buyer’s character.
Employment Verification: Letter from the employer stating salary and position.
The Interview:
The board meets (usually once a month) to interview the candidate.
Pro-Tip: The interview is a "vibe check." Advise clients to answer only what is asked and avoid discussing future renovations or noisy hobbies.
IV. Specialized Properties: Condops and Land Leases
Condop: A building that is legally a Condominium but acts like a Cooperative. Usually, the residential portion is one large condo unit owned by a co-op corporation.
The 80/20 Rule: Historically, co-ops had to get 80% of income from residents. Condops were created so developers could keep lucrative commercial rent separate.
Land Lease (Ground Lease): The building does not own the land it sits on; it leases it (often for 99 years). As the lease expiration nears, maintenance costs can skyrocket.
⚠️ EXAM ALERT: QUICK FACTS
Shares vs. Deed: If the question asks what a co-op owner receives at closing, it is a Stock Certificate and a Proprietary Lease. If it’s a condo, it’s a Deed.
Mortgage Recording Tax: This tax applies to Condos (real property) but NOT to Co-ops (personal property).
Flip Tax: A fee paid to a co-op corporation upon the sale of a unit. It is not a government tax; it is a transfer fee to boost the building's reserves.
Alteration Agreement: A contract between a unit owner and the board that outlines the rules for renovations. An owner cannot just "start knocking down walls."
Mansion Tax: This DOES apply to both Condos and Co-ops if the purchase price is $1,000,000 or more.
Key Terms
Alteration Agreement: A written agreement between a cooperative or condominium board and a unit owner that outlines the terms and conditions under which the owner is permitted to make physical changes or renovations to their unit.
Board Package: A comprehensive set of documents, including financial statements, tax returns, and personal references, submitted by a prospective purchaser for review by a cooperative board or condominium association.
By-laws: The governing rules of a condominium or cooperative that establish the procedures for the administration of the association, including the powers and duties of the board of directors.
Common Elements: Parts of a condominium that are necessary for the existence, maintenance, and safety of the project, or are normally in common use by all of the condominium residents, such as the land, roof, and elevators.
Condominium: A form of real property ownership where the owner receives a deed for an individual unit and an undivided interest in the common elements of the entire property.
Condop: A hybrid building that contains both condominium and cooperative ownership structures; typically, the residential portion is a single condominium unit owned by a cooperative corporation.
Cooperative: A form of ownership where a corporation owns the entire building and individuals purchase shares in that corporation, receiving a proprietary lease for a specific unit rather than a deed.
Covenants, Conditions, and Restrictions (CCRs): Private agreements and limitations, typically found in a condominium's declaration, that govern how the property can be used and maintained by its owners.
Declaration: The legal document that creates a condominium and outlines its legal structure, description of units, and the common elements.
Flip Tax: A transfer fee imposed by a cooperative corporation upon the sale of shares, which is paid to the corporation to bolster its reserve funds.
Flipping: The practice of purchasing a property and quickly reselling it for a profit, often after making minor improvements.
House Rules: Specific rules adopted by a cooperative or condominium board that govern the day-to-day behavior of residents and the use of common areas, such as rules regarding pets or noise.
Letter of Intent: A non-binding document used in commercial or large residential transactions to outline the preliminary terms of a proposed agreement before a formal contract is drafted.
Maintenance: The monthly fee paid by cooperative shareholders to cover their share of the building's operating expenses, property taxes, and mortgage debt service.
Offering Statement: Also known as an Offering Plan, this is a detailed document required by the New York Attorney General that must be provided to prospective buyers before a new condominium or cooperative can be sold.
Proprietary Lease: A unique lease given by a cooperative corporation to its shareholders, granting them the right to occupy a specific unit in the building.
Recognition Agreement: A three-party agreement between a cooperative corporation, a shareholder's lender, and the shareholder, in which the corporation "recognizes" the lender's lien against the shares.
Share Loan: A loan obtained by a cooperative purchaser to finance the acquisition of shares in the corporation, using the shares and the proprietary lease as collateral.
Sponsor: The developer or owner of a building who initiates the process of converting it into a condominium or cooperative structure.
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