Although there are many distinctions between a cooperative apartment (a “co-op”) and a condominium apartment (a “condo”), many people lean toward condos because they consider the condo process to be far more easy-going than the intrusive co-op board process. But is that really the case? Those people looking to purchase a condo in order to avoid the prying eyes of a board may be in for a rude awakening.
In a co-op building, the apartment is actually owned by a corporation, which issues shares of stock that are assigned to each apartment. What co-op shareholders actually own is those shares of stock, along with the right to live in the apartment pursuant to a proprietary lease. The corporation’s by-laws provide that the board of directors has a right to determine who lives in the building.
A purchaser of a co-op apartment submits an application along with detailed financial and personal information and references, and is subject to an interview by the board. The board has the right (either before or after the interview) to accept or reject the application for any reason or for no reason, as long as it does not discriminate against the purchaser. The board has a similar right to accept or reject applicants looking to lease an apartment in the co-op building. These rules do not apply to apartments being sold by sponsors, which are not subject to the board approval process.
Dealing with a co-op board can bring a great deal of uncertainty and leave prospective purchasers feeling exposed and vulnerable. Those who don’t have the stomach for the board approval process may look to purchase a condo. In a condo building, the apartment is actually owned by the purchaser. The board of managers of the condo does not have the right to accept or reject a purchaser’s application, or to interview the purchaser; however, the by-laws typically provide the board of managers with a right of first refusal. This right provides the board of managers with the ability to purchase the apartment from the seller on the same terms offered to the purchaser under the contract of sale. If the board of managers decides not to exercise this right, it issues a written waiver.
In many instances, before issuing the waiver, the condo board of managers can be just about as intrusive as a co-op board. According to Thomas Wexler, a senior vice president at The Corcoran Group, a cursory review of recent condominium applications revealed that “at least three-quarters were asking for a lot of information, such as tax returns, financial statements, bank references, employment references, landlord reference letters and personal reference letters.” If keeping your personal information private is a priority, purchasing a condo may be no less problematic than purchasing a coop.
For those in the high end of the market, an attractive alternative to either a coop or a condo could be a townhouse. According to Lisa Fitzig, who works with Wexler as a townhouse specialist, “When purchasing a townhouse, there is only one person looking at the purchaser’s financial information: the seller.” Keeping information private is therefore less of a problem.
Most condo purchasers, for whom a townhouse purchase is not an option, will just have to deal with the intrusion. For those who are applying for a mortgage to finance their purchase, Wexler correctly reminds us that “most lenders today have similar levels of scrutiny” to those being applied by condo boards. In most instances, the pain is short-lived. It is unusual for a board of managers to actually exercise its right of first refusal. In order to exercise the right, the board of managers must obtain the consent of a substantial percentage of the unit owners (usually two-thirds) and quickly come up with the funds necessary to complete the purchase.
The most common reason for a condo board to exercise the right of first refusal is that the unit is being sold for well under market value. The board can exercise the right and resell the unit at market rate, adding cash to the operating account of the condominium. Not many condominiums have cash readily available or have a large percentage of unit owners willing to spend what is necessary to purchase a unit, or can get their unit owners together to vote quickly enough to exercise the right. Unless the unit is being sold for well under market value, the issuance of the waiver is almost always “still a formality,” says Fitzig, “even if the process is somewhat burdensome.”
In the end, having a board scrutinize your personal information is part of the price you have to pay for being an apartment owner in New York, whether that apartment is a coop or a condo. Of course, the issue of board scrutiny is only one of many factors to be considered in determining what type of apartment you wish to buy. In order to determine which form of ownership is best for you, speak with your attorney or your broker. If the prospect is too daunting, the answer could lie in the tree-lined streets of suburbia. Is that what you really want? I didn’t think so.