What is a Coop Proprietary Lease? And how does it work? If you own an apartment in New York City, you probably own it as a co-op. The way you own an apartment as a co-op is two-step:
- You own shares of the corporation that owns the building and
- the corporation “rents out” your own apartment back to you.
That’s right, the co-op building in which you live rents out your apartment. To you.
The document which determines the landlord-tenant relationship between you and the management and the board of the corporation that owns your apartment building is called the proprietary lease.
Proprietary Lease in a Coop Means You’re at the Mercy of the Board
Unfortunately for you, you are in many ways, essentially a tenant in your own apartment. The proprietary lease gives the management of the Coop the right to evict you. The board can use a number of reasons to evict you, for example, if you don’t pay the maintenance or the assessments or violate one of the Coop management’s restrictive rules. So not only are you in many ways a tenant in your own apartment, the fact that your coop has a proprietary lease means that you can also be evicted from your own apartment.
Want to transfer your apartment to a trust or put one of your children on the “deed?” The proprietary lease for your Coop probably has a language requiring you to get the “transfer of ownership” approved by the management and the board.
You are Also at the Mercy of the Bank
This is in addition to the fact that you will also need the transfer to the trust approved by the mortgage company. The way mortgages work in proprietary leases is that the bank that holds the mortgage has a mortgage lien on your shares of the corporation that owns your building, recorded in a central mortgage system and recorded with your apartment’s management. So before you transfer your Coop shares and proprietary lease to a trust for yourself or add a name to the “deed,” you will need the bank’s approval. Otherwise, the bank that holds your mortgage may have the right to “accelerate” the mortgage and foreclose on your apartment even though you’re making mortgage payments.
You can see how you, in a way, get the worst of both worlds in a Coop with a proprietary lease. You can both be foreclosed on by the mortgage company and be evicted by your “landlord,” the coop management. But that’s how apartment ownership is set up in New York City, so we’ve all learned to live with it.
Problems with the Board or the Bank?
An array of issues can occur with the board and the bank which an attorney can help you resolve:
- an apartment owner having issues with your coop management or board
- an apartment owner who is being evicted by the Coop management
- considering adding a name to a “deed” of a Coop
- having issues with the bank
- wish to include your co-op in your estate plan