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Should You Buy a Condo or Co-op Through an LLC?

Real Estate Legality

Buying an apartment through a Limited Liability Company or LLC may be a way to limit personal liability or protect assets, but it may not be a viable option.  Even if it is, it might not be worth the trouble. In the first instance, the purchase of a cooperative apartment through an LLC may not even be possible as building by-laws may preclude such a purchase. In the case of a condominium, it would be rare to see a preclusion in a condominium’s by-laws, but that does not mean an individual should rush to purchase a condominium through an LLC. At Guzov, LLC, our cooperative and condominium lawyers assist clients in making the right decision and in executing that decision. Guzov considers a client’s goals relating to the property in helping a client arrive at the right decision based on personal preferences and intended use of the property to be purchased.  

The Potential Additional Cost of Buying a Co-op Through an LLC

To purchase an apartment in a co-op that permits the purchase of shares by an LLC, there will be additional steps that an individual will not encounter. They may include:

  1. Signing an occupancy agreement (also known as an inducement agreement); and/or

  2. Personally guaranteeing the payment of monthly maintenance and other fees.

While this may not sound onerous, at closing, the co-op might require the purchaser to pay the legal fees for drafting and negotiating these agreements.

The occupancy agreement is designed to reduce the risk of the LLC bypassing the co-op board’s approval process for sublets and resales.  The agreement prevents unauthorized subletting by specifying who has the right to live in the apartment.  The inducement part of the agreement prevents unauthorized resales of the apartment without co-op board approval.

As for the purchaser’s personal guarantee of the unit’s monthly maintenance payment, the guarantee ensures that the co-op will not have any difficulty collecting unpaid maintenance, assessments, or fines from the LLC.

What are the Advantages?

There are two main advantages: privacy as well as the limitation of personal liability.

  1. With respect to privacy, buying real estate via an LLC generally shields the name of the true owner from the public eye.  However, the New York State Senate and Assembly passed the LLC Transparency Act, a bill requiring LLC owners to disclose the name of the true owner to New York State.  Thus, if this bill is signed into law by Governor Hochul, anonymity will no longer be an advantage associated with an LLC as the individual owner’s name will be accessible through a public database.

  2. With respect to liability, buying property through an LLC shields the purchaser from financial liability beyond the value of the assets contained within the LLC; personal liability is thus limited.

What are the Disadvantages?

There can be several potential disadvantages to buying through an LLC:

  1. Buying via an LLC in NYC may disqualify a purchaser for certain tax benefits such as a tax abatement;

  2. It is harder to obtain a mortgage when buying in the name of an LLC;

  3. Homeowners insurance may be more expensive for a property owned via an LLC; and

  4. There may be additional upfront or recurring fees specific to the co-op or condo.

If you are considering purchasing a condo or co-op through an LLC and you would like to discuss whether it is the right option for you, please contact us to schedule a consultation.

This blog was revised on August 31, 2023.

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