Co-ops (short for "cooperatives") are apartments buildings owned by a corporation. Individual tenants do not own their apartments in exactly the same way that they would a condominium or home. They actually own shares of stock in the corporation. These shares are apportioned based on the size and floor level of their apartment, and ownership is established by a stock certificate and occupancy is governed by a "proprietary lease". The corporation pays all real estate taxes, maintenance expenses, and the underlying mortgage on the building. The co-op owner's portion of the payment depends on the number of shares owned in the corporation.
Cooperative ownership is the most common form of apartment ownership in New York City. There are three times as many co-ops as there are condominiums in Manhattan, which means that there are more cooperative apartments on the market and they are likely to be more affordable than similarly sized condominiums.
History of Coops
If the idea of going through a coop baord sounds a little un-American and intrusive, well...........it is. Cooperative living got its start in the 1880's, inspired by Charles Fourier, a French socialist who argued that cooperation bred efficiency. A French immigrant to New York named Philip Hubert picked up on the idea and built arguably the first co-op, the Hubert Home Club, near the current site of Carnegie Hall.
But according to the New York Times, despite their utopian origins, co-ops quikcly turned into a celebration of capitalism and exclusivity. Soaring new Hubert Home Clubs opened on Madison Avenue and next to Central Park, offering the sort of living space that has always made New Yorkers envious, according to the writer Elizabeth Hawes.
Today, co-ops-which sell shares in a corporation that owns the building, rather than individual apartments-- make up the bulk of our housing. As always, the boards have the right to reject any buyer who doesn't quite fit, however they define "fit." Socialism turned into New York style elitism? Yes, indeed.
Advantages and Disadvantages
Basically, cooperative ownership offers the same advantage with a few extras:
- The tenant-owners elect a Board of Directors, whose responsibility is to meet, interview and "approve" or "disapprove" a prospective owner, thereby protecting the present tenants' interest by approving only qualified candidates.
- Cooperative ownership offers a more stable community environment. Residents tend to stay for longer periods of time, and few co-ops allow extensive subletting, preferring a high owner-occupancy.
- A large portion of the monthly maintenance fee paid by each shareholder is tax deductible, i.e., the pro-rata share of the corporation's real estate taxes, as well as the building's underlying mortgage payment.
- The board often requires a large cash down payment. Usually prospective purchasers are required to put 25% down. Some co-ops may require more. Many of the most exclusive buildings permit no financing at all.
- Most co-ops prefer owners to be occupants; therefore subletting an apartment may be difficult. Each co-op board has its own set of rules, but generally speaking, subletting will have to be approved by the board, and permission is usually granted for no more than 2 years. Some co-ops, however, are more flexible and are known as "easy boards".
- Owners are normally not allowed to use their apartments for professional or business purposes.
- Almost all renovations to individual apartments will have to be approved by the board.
- Owners who wish to sell their apartments will have to have the new buyer approved by the board through the application process.
- Often co-cops impose a tax on selling called a "flip tax" to compensate the co-op for the inconvenience of someone new moving in. The monies go to the co-cop treasury and often help keep monthly maintenance down.
Owning a condominium in Manhattan is the same as owning one anywhere else. It is a fee simple ownership and the buyer receives a deed in a formal title transfer. Monthly payments to the condominium are called "common charges", and they are used strictly for maintenance and upkeep of the jointly owned areas. Of course, the amount of interest on the owner's personal mortgage is fully tax-deductible. Real Estate taxes are paid directly to the city.
Fee simple ownership gives owners the right to rent their own apartment, a place for some people. Mortgage amounts can be as high as 90% of the sales price if the buyer qualifies. Often there is not a formal application process, so the time from contract signing to closing is usually shorter.