Is it possible to purchase an apartment in New York through a limited liability corporation (LLC)? Yes, if the condo or co-op board permits it. Over the past couple of years, boards have allowed individuals to buy their units under an LLC, and in some instances even as a corporation. Purchasing an apartment under an LLC protects the buyer’s privacy and assets, in addition to shielding the buyer against future liability claims, all of which are ideal for celebrities and other buyers who wish to remain anonymous. It is important for condo and co-op boards to amend the building’s by-laws and proprietary leases (in the case of co-ops) to include llc owners (see how to amend your building’s by-laws in our previous blog).
Buying apartments under an LLC, according to Habitat, has the added benefit of “reduc[ing] the risk of a residency audit.” New York’s residency audits check if property owners are either full-time residents, partial residents, or nonresidents to determine whether they have filled out their income tax returns correctly. Foreigners and non-state residents frequently purchase pieds- à -terre, and the audit ensures that the property holders are not evading payment of New York income taxes. Owners of pieds- à -terre who are nonresidents to New York State only have to pay property taxes, which are significantly lower.
Individuals who wish to purchase a condo under an LLC usually do not come across any problems unless the building’s by-laws prohibit such a purchase. Condo boards are notoriously less strict than co-op boards and typically do not deny a potentially buyer’s offer. Purchasing a co-op under an LLC is trickier. Siim Hanja, who works for Brown Harris Stevens (the luxury real estate firm), noted that only 20 percent of the co-ops he has sold are purchased by LLCs. These buyers are typically wealthy foreigners who are purchasing pieds- à -terre.
Why are co-ops strict about llc shareholders? Among other reasons, when an LLC is the shareholder and that unit is used as a pied-à-terre, it is more difficult for co-op boards to legally follow up, since the owner is a business entity and a separate legal entity from the resident, who is seldom in residence. Moreover, there is a lack of guarantee of payment of maintenance fees and other expenses.
How can issues such as these be avoided? Co-op boards are known for their invasive vetting process for new shareholders and strict regulations governing who may live in the unit. If the board permits an LLC to be the shareholder, there would need to be a supplemental agreement ensuring only the members of the LLC can reside in the unit and that they would need board approval before transferring the shares and proprietary lease. The agreement would also need to provide that family members of the LLC’s members do not have the right to live in the unit. An additional safeguard would be for the shareholder to sign an agreement that the individual behind the LLC will act as a guarantor, therefore accepting any and all responsibilities of the proprietary lease.