Cooperatives: shares, due diligence, and the documents a sale needs

What a cooperative buyer receives

A cooperative sale transfers corporate shares and a proprietary lease, not a deed to the apartment. The corporation owns or leases the building; the buyer's proprietary lease supplies occupancy rights. A condominium purchaser instead receives a deed to a unit and an interest in common elements.

Documents and due diligence

The stock certificate evidences share ownership. The proprietary lease governs occupancy rights and obligations; bylaws govern corporate affairs, and house rules govern daily use. Review the offering plan and amendments, financial statements, budget, reserves, underlying mortgage, planned repairs, assessments, and relevant board minutes. Low maintenance alone does not establish financial health. Maintenance funds corporate expenses and may include taxes and underlying mortgage payments.

Review transfer procedures and occupancy or subletting restrictions. Board approval, when required, is separate from loan approval. A financed purchase commonly involves a recognition agreement addressing lender and cooperative rights. The buyer's share loan differs from the corporation's underlying mortgage. Exact requirements and tax consequences depend on the documents and circumstances; obtain legal and tax advice.

New York offering disclosures

General Business Law § 352-e requires an offering statement for covered public offerings of cooperative interests. Generally, offers, advertisements, and sales await the Attorney General's filing letter. Filing is not investment approval. Disclosures include the interest offered, essential mortgage terms, and transfer restrictions. This public offering procedure differs from board review of a resale purchaser.

Federal tenant-stockholder terminology

Under 26 U.S.C. § 216(b)(2), a tenant-stockholder owns fully paid-up stock in a cooperative housing corporation in an amount bearing the required reasonable relationship to the corporation's equity attributable to the dwelling the person may occupy. Under § 216(b)(3), the general proportionate share compares that stock with total outstanding stock, including stock held by the corporation. An elected special allocation can apply when qualifying tax or interest allocations reasonably reflect costs attributable to the unit and its share of common areas. Maintenance charges are not synonymous with deductible taxes or interest.