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« previous: The Fannie & Freddie Bailout   |  next: Consumer sentiment poll »

Wednesday, September 24, 2008

What are the actual differences between townhouses, coops, condos and cond-ops?

buying a manahattan co-op or condoThe Manhattan real estate market has forms of property ownership which includes fee simple, traditional townhouses; but the vast majority of housing stock are apartments with forms of ownership which called 'co-ops', 'condos' and 'cond-ops' which are sometimes misunderstood. For example, it is possible to have a coop or condo unit within a townhouse style property. Each form of ownership has different opportunities, rewards and risks, so discuss them with your broker at the beginning of your search. Real Estate Attorney Keith Schuman takes us back to the basics here, by defining the major types of residential property, as part of his series about purchasing a home in New York City.

What Is a House?
A house generally refers to a one to four-family residence. It is the most common form of home ownership. The purchaser receives a deed to the home and the land that gives “fee-simple” ownership of real property. The purchaser is solely responsible for payment of all real estate taxes, insurance, utility, and maintenance costs for house.

The view from unit 17C at the Cielo condominium

What Is a Condominium Apartment?
Condos are found in almost all cities. The ownership of a condominium apartment is similar to the ownership of a house since you purchase real property and receive a deed to the unit. Since condos are generally found in apartment buildings, you own the interior space of your apartment outright. You also own an undivided portion of the building (known as the common areas or common elements), and you have the right to use these common areas of the building – such as the community facilities, laundry room, parking spaces, and hallways. There are generally few restrictions on your right to alter the interior of your condominium apartment provided that it does not affect the building’s structure or interfere with neighboring apartments.

A condominium is governed by an elected board of managers whose powers are derived from a declaration of condominium and bylaws. The condominium’s board of managers makes financial decisions about the amount of common charges that are needed to pay the building’s operating expenses and to maintain the building’s common areas. A condominium unit owner may mortgage the unit without limitation as to the amount of the loan and pays the real estate taxes on the unit as such taxes are determined by the governmental taxing authorities. A condominium’s board of managers usually does not have decision making powers regarding the sale or the sublet of the condo unit. Purchasers and subtenants of owners must submit an application to the condo’s board of managers. The board reviews the application and must either approve the applicant or exercise the condo’s “right of first refusal” to match the purchase price or rent amount. Although uncommon, the option to purchase or to rent the condominium apartment from the current owner rather than have it transferred or rented to the applicant is available to the board. Most condominium’s policies toward subletting are more lenient than are coops’ policies - which is why purchasing a condo is often a better choice for investors.

What Is a Cooperative Apartment?

Coops are common in New York City but relatively uncommon elsewhere. A cooperative corporation owns the building, including the individual apartments and the common areas. The corporation issues shares of its stock (the stock certificate), which are allocated to each apartment based upon its size and location within the building. As a shareholder in a cooperative corporation, you are entitled to a lease from the corporation (the proprietary lease), which gives you the right to live in the apartment. Most cooperative corporations have a mortgage on the entire building (the underlying mortgage), and each shareholder may obtain a loan for the purchase of their own apartment. Most cooperative corporations limit the amount of money a purchaser may borrower for the purchase of their apartment to an amount equal to between 50% and 80% of the purchase price. The stock certificate and proprietary lease allocated to the apartment are pledged to the lender as security for the loan, and a Uniform Commercial Code Financing Statement (UCC-1) is filed in the county where the apartment is located so that the lender has a lien on the stock certificate and the proprietary lease.

Each coop corporation is governed by an elected board of directors whose powers are derived from the certificate of incorporation, the bylaws, the house rules and regulations, and the proprietary lease. The coop’s board of directors makes all decisions regarding the maintenance paid by each shareholder, repairs and capital improvements to the building, the amount of the underlying mortgage, the right to sublet, whether or not a purchaser’s application to purchase in the building will be approved or disapproved, repairs and alterations of individual apartments, and payment of all building expenses. As a coop owner, you pay a monthly maintenance fee to the coop corporation. This fee covers your proportionate share of the costs of operating the building. Typically, operating costs for the building are comprised of property taxes, monthly payments on the underlying mortgage, insurance, utilities, and labor costs. You are entitled to deduct a portion of your maintenance payment from your taxable income.

What Is a Cond-op?

A cond-op is a residential cooperative building where the ground floor (typically consisting of commercial units such as offices or retail stores) is converted into a separate condominium unit owned by either an outside investor or by the original sponsor of the building. Because the coop corporation does not own the condominium portion of the building, the coop corporation generally does not receive the benefit of the income (i.e., rent) from the condominium tenants.

editors note: While Keith's definition of a condop is quite accurate, in the vernacular language of real estate sales, agents will often use the term to describe an apartment offered for sale which, although legally organized as a co-op, has condo-like house rules. For example they may have a streamlined application process, not require a Co-op Board interview, permit investors, or have liberal sublet policies.

About the author: Keith A. Schuman, Esq. is the founder of Schuman & Associates, LLC, a full service real estate firm that provides legal services to its clients, through all aspects of their transactions. Keith is a frequent contributor to Contact him at or phone 212.490.0100.

related posts:
tips on shopping for a home
Who are the key advisors in buying a Manhattan home?
What are the income tax benefits of owning a home
When should I buy a home?

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