News & Insights

Home » News & Insights » To Convert or Not to Convert

To Convert or Not to Convert

Other

Is your co-op considering the transition to a condo?  These days the allure of living in a co-op just isn’t quite what it used to be.  It can be difficult to sell your apartment, buy an apartment, sublet the apartment, or pretty much anything else, as co-op life necessitates board approval for just about everything. Plus, where the average sales price of a condo unit jumped 21 percent from 2013 to 2014, the average sales price of the shares referable to a co-op unit only increased about 1.7 percent. With all of that in mind, why not just convert?  Converting from a co-op to condo isn’t as easy as one may think.  Below are a few, yet major hurdles to overcome if you want to successfully “shed the shackles” of co-op life.

 Get shareholder approval

Most proprietary leases require a “super-majority” of shareholders, as many as 80 percent, to make this sort of change, and persuading that many residents to vote in favor is the first hurdle.  For co-ops with shareholders who prefer an absence of renters in their building, it may be difficult to garner support.

Paying off the underlying mortgage

The co-op will have to pay off its underlying mortgage, and shareholders who carried personal mortgages would have to refinance, swapping their loans for more traditional mortgages.  Depending on your co-op’s mortgage underwriting, there may be huge repayment penalties.

Drafting new governing documents

A new declaration of the condominium and new bylaws would have to be written to replace the old proprietary lease and bylaws.

Pay your taxes

The conversion triggers a personal “tax event.”  That’s because it’s not actually a conversion, but a dissolution of the corporation, with the full capital gains taxes payable for that year as if a sale occurred.  For individual shareholders that have been in the co-op for years there may also be huge capital gains taxes when they trade their shares in for a deed to a condo unit if a unit’s value has increased at the time of conversion.

If the shareholders in your building are unwilling to deal with all of this, there are a couple of things that the building can do to make life in a co-op less restrictive.  For co-ops with high down payment requirements, the building can lower the down payment bar.  Co-op boards can also agree to loosen some of their policies, including the application process or the building’s policy regarding owner sublets.

Recent Posts

Impact of Shorter COVID-19 Quarantine on Workplaces

On Monday, the CDC announced changes to its recommended isolation and quarantine time from 10 days to 5 days for asymptomatic people with COVID-19. They recommend that people leaving isolation after 5 days continue to wear a mask for the following 5 days. The CDC also...

Restaurants Sue Over Vaccine Mandate

Restaurant operators sued Mayor Bill de Blasio and New York City over Key to NYC, the new indoor vaccine mandate program, on August 17-the same day the mandate went into effect. A group of restaurants in Staten Island, through the Independent Restaurant Owners...

Financial Regulators’ New Target: Social Media Influencers and SPACs

The Financial Industry Regulatory Authority (“FINRA”) will conduct three new regulatory sweeps in an effort to combat various activities causing extreme fluctuations in the financial markets. FINRA has chosen to target special purpose acquisition companies (“SPACs”),...

Does WARN Apply to Virus Closures?

Enterprise, in Benson et al. v. Enterprise Leasing Co. of Florida LLC et al., has tried to argue that the Worker Adjustment and Retraining Notification Act (“WARN”), through its natural disaster exception, does not apply to closures caused by COVID-19. Two Florida...