COOPERATIVES IN NEW YORK
I. COOPERATIVE HOUSING CORPORATIONS
A. Has only one class of stock
B. Each stockholder is entitled by reason of ownership of stock in the corporation, to occupy as a dwelling a house or an apartment
C. 80 percent or more of the gross income each year must be paid by tenant stockholders. The 80/20 test. Up to 20 percent of the income may come from non stockholders (e.g. commercial tenants or concessions)
Pursuant to Section 216 of the Internal Revenue Code if the cooperative passes the 80/20 test each shareholder may deduct his/her portion of the real estate taxes and interest on the mortgage from personal Income Taxes.
II. TYPES OF COOPERATIVES
A. Free market (No oversight agency control)
These cooperatives are usually multi-family rental properties converted to cooperatives.
· No government subsidies as to taxes or below market rate mortgages
· No controls as to room rental charges
· No control as to resale prices or requirement that all resales must be made back to the cooperative.
· Therefore free market is where a cooperative house or apartment may be sold to a willing purchaser by a willing seller at any price.
· In many cases, in a free market sale, there is a flip tax or fee paid to the cooperative. This flip tax is usually one where a percentage of the sale price (e.g. 3% or a charge per share of stock sold e.g. $10.00 per share).
· The flip tax is a fee paid to the cooperative and is a pay back to the cooperative by the outgoing shareholder for the benefit he or she received While he/she lived in the cooperative (e.g. (i) lower rent or maintenance than rental tenants (ii) services, (iii) appreciation in value of the apartment)
· Tenant shareholder has access to all financial records
B. LIMITED PROFIT HOUSING COMPANIES (FEDERAL)
iii. Section 213 of the National Housing Act
a. Housing cooperatives built as cooperatives, not converted from rental properties
b. Built by private developers with FHA/HUD guaranteed mortgages
c. Built in 50's and 60's
d. Two classes of stock:
i. Preferred: FHA or HUD
ii. Common: Tenant stockholders
e. FHA/HUD oversight authority
- Debt financing
- budgets
- rent
- reserves-operating
- reserves replacement
- By-laws
- Board membership (e.g. FHA/HUD could replace the Board)
- management
F. Cooperative could re- purchase the apartment at book value but typically waived its option, for a flip tax
C. LIMITED PROFIT HOUSING COMPANIES (PRIVATE HOUSING FINANCE LAW) (Also known as Mitchell-Lama Coops)
1. The oversight authority is the New York City Dept. of Housing Preservation & Development (HPD)
a. Site approval and sponsors
b. Initial application and rent up period controlled "Equal Housing opportunity"
c. Approve schedule of rentals
d. Control of waiting lists up to three years
e. Occupancy priorities
i. site residents
ii. current residents
iii. veterans
iv. external waiting lists
f. Income standards and verification based on income tax returns
g. Application of 235(F) Real Property Law
h. Additional occupants MUST be approved
i. Succession rights
j. Income limits
i. Chief wage earners incomes can not exceed 7 times the annual rent. If 3 or more dependants, the annual income of the chief wage earner can not exceed 8 time annual income
ii. For each family member add income in excess of $5,000.00 to the chief wage earners income
iii. Medical expenses are deducted.
iv. The income of a full time student under 21 is not included in the calculation of the total income.
v. In a cooperative when calculating the rent vs. total income of the chief wage earner, you add 6% of the investment (purchase price, utilities and cost of replacement of fixtures)
vi. Surcharges adjusted for dependants
vii. Surcharge starts at 5% of basic rent to 50% of basic rent
viii. Housing company is required to procure affidavits each year from cooperators
ix. All surcharges collected will be retained by the housing company
x. If a tenant or cooperator exceeds income limits by 125% he/she is subject to removal. If income exceeds 150% he/she will be removed within 3 years unless extended by HPD
2. RESALES IN COOPERATIVES (SALE PRICE IS RESTRICTED)
a. Price cooperator paid for shares
b. Capital assessments
c. Amortization on prior or existing mortgage
d. Administrative charge
3. All monthly rent and assessments and other charges must be approved by HPD
4. Amendments to By-laws or Rules must be approved by HPD
5. No stock or a lease may be bequeathed to another. However, eligible members of the tenant stock holders immediate family may acquire the shares of stock if they meet the regulatory requirements
6. SERVICES, REPAIRS & REPLACEMENTS
· Contracts go to lowest bidder, with a minimum of 3 bids
· Contracts over $5,000.00 must be approved by HPD in Housing Companies under 500 units
· All work subject to inspection and approval by HPD
· Contractors to be insured
· A performance and payment bond is required, unless a waiver is granted by HPD on contracts over $25,000.00
· Professional service contractors to be approved by HPD (e.g. management, attorneys or accountants)
7. RESERVE AND ESCROW ACCOUNTS (COOPERATIVES)
· Reserves for replacements
· Reserves for painting and decorating
8. Reserves for vacancy and collection loss - 3% of rent roll up to 25%. This reserve is also used for contingencies and emergencies
9. All financial records and books subject to audit
10. Mandated required insurance
· Public liability ($1,000,000.00)
· Worker Compensation and disability
· Fire insurance
· Fidelity and hold up bond
· Rental income
· Boiler and machinery
· Directors and Officers
· Umbrella coverage of $1,000,000.00 to $15,000,000.00 based on total units under 150 to 1001 units
· All insurance proceeds shall clear through HPD
11. RENT AND CARRYING CHARGES INCREASES
· Public hearings
· Based on 4 year projections of cash flow and histories
· Audited financials to be provided
12. EVICTION PROCEEDINGS
· No prior approval by HPD for non payment of rent, except for non payment of sub-metering of electricity
13. REMOVAL OF BOARD OF DIRECTORS
· Board of Directors may be removed by HPD for violations
· HPD may replace Board. Directors appointed by HPD will serve during duration of violation or assurance of no further violations
· No officer or board member or immediate family shall do business directly or indirectly with the Housing Company
14. VOLUNTARY DISSOLUTION (COOPERATIVE)
Under the Private Housing Finance law, a company aided by a loan or the tax abatements, may be dissolved, without the consent of HPD after 20 years from the occupancy date upon:
a. Payment of principal and interest on its mortgage
b. Payment of all dissolution expenses
c. Payment of all operating expenses and debts
d. Conveyance of title of the Real Property to the stockholders. All surplus funds shall be paid to the City of New York
e. Housing Company to register all apartments with DHCR
f. A special meeting of shareholders and approval by a 2/3 vote of all outstanding shares voting for withdrawal
g. Tax abatements will end in dissolution and housing company shall pay full real estate taxes
h. All SCRIE (Senior citizens Rent Increase Exemption)benefits to senior citizens to continue
i. Tenant cooperator advisory councils. They will only be recognized in cooperatives prior to the election of a Board of Directors
15. FINANCIAL RECORDS
a. Tenant Cooperator may have access to all financial records on which the financial statement is based
b. The operating budget and financial statements shall be supplied to all shareholders
16. LEASE TERMINATION
l. No eviction proceeding may be commenced for lease termination, by a housing company without:
· A hearing at HPD by a hearing officer and a certificate of eviction being issued by HPD
· The tenant cooperator shall be advised as to the specific charges of lease violation ( "Notice to Cure")
· A decision of the hearing officer at HPD, is not subject to administrative appeal. However, an action may be commenced in Supreme Court for review (An Article 78 Proceeding)
· An administrative proceeding may be waived by HPD, in cases of health or safety
D. REFINANCED HOUSING COMPANIES UNDER FEDERALLY INSURED MORTGAGES (223(F) OR 236 MORTGAGE SUBSIDY LOANS UNDER THE NATIONAL HOUSING ACT
Under 223(F) mortgage programs the housing companies remain subject to the Private Housing Finance Law and HPD, except as to matters involving maintenance management or operations where the oversight authority is HUD.
HPD will continue to oversee applications tenant/cooperator eligibility, waiting list standards, occupancy priorities, income verification and primary residency requirements
In 236 mortgage subsidy contracts the housing company must meet HUD income limits and occupancy standards where they differ from HPD standards
E. FORMS OF LEASES
All leases and modifications or amendments shall be approved by HPD
