Holders of Unsold Shares in a Coop
In many coop's offering plans, there is a special class of shareholders called Holders of Unsold Shares who have rights and privileges not enjoyed by the ordinary tenant-shareholder. The more unsold shares there are in a co-op, the less clout the other tenant shareholders have. If the coop has a majority of unsold shares it is difficult to obtain financing since the coop is less than 50% owner-occupied.
Q: What
are Unsold shares? What is a Holder of unsold shares?
A: "Unsold shares are any shares not
subscribed to and fully
paid for prior to closing. At or prior to closing, unsold shares must be
acquired by the sponsor or financially responsible individuals produced by the
sponsor. A holder of unsold shares is the sponsor or any individual designated
to hold unsold shares by the sponsor. Such shares shall cease to be unsold
shares when purchased by a purchaser for occupancy.
The
key word in this definition is "designated". When a sponsor holds on
to unsold shares after the closing he or she may, thereafter, transfer those shares to
others, not necessarily to "holders of unsold shares". If he or she
designates the grantee of these shares as a "holder of unsold shares"
then that individual or entity" becomes a holder of unsold shares.
Holders of Unsold Shares are not required to submit their prospective purchasers to the board for its approval, nor are they bound by the board's sublet restrictions. Holders of Unsold Shares are allowed to sublet their units at market rates in perpetuity. They're also exempt from paying sublet fees, alteration fees, transfer fees, and flip taxes which may be imposed on the typical tenant-shareholder.
These are shares of stock in a cooperative
housing corporation that are allocated to apartments that have never been
purchased for residential use. Once the apartment is acquired as a residence,
the shares allocated to it cease to be Unsold Shares, and its owner is not
entitled to Holder of Unsold Shares status.
I recently listed two sponsor apartments in a coop in Morningside Heights. Both were purchased by an investor that will retain the sponsor rights
and privileges as long as the purchaser (holder of unsold shares) designated by the sponsor never occupies the apartment.
The New York State
Attorney General has taken the position that an Owner of Unsold Shares does not
necessarily qualify as a Holder of Unsold Shares and that to become a Holder
of Unsold Shares, an Owner of Unsold shares must meet the following five
requirements:
1. Obtain a
designation as Holder of Unsold Shares from the sponsor. Subsequent transferees
of the sponsor can not obtain the designation from their immediate seller, it
must be procured from the original sponsor. Under the regulations, the sponsor
may only designate financially responsible persons as Holders.
2. Obtain a written
guarantee of payment by the sponsor to the co-op of all financial obligations
of the Holder of Unsold Shares. This provision of financial security is the
quid pro quo for allowing an investor to enjoy the privileges and immunities
described above indefinitely.
3. Adhere to the
escrow and trust fund provisions of the General Business Law.
4. Register with the
Department of State as a broker-dealer.
5. File regular updating amendments to the
Offering Plan.
No comments
All related comments are welcome. Spam and spammy links will not be published and will be deleted.