When most of us buy a home, we think it's ours. But co-operative housing is different.
Buyers don't own units in a co-op building. They buy shares in the non-profit corporation that owns it, along with a personal right to occupy a unit. Unlike condo buyers, they don't own the unit itself, just rights of occupation and access.
Last month, The New York Times answered an intriguing question from a reader:
"I live with my partner in a co-op apartment in New York City, which I bought outright three years ago. Since it was a sponsor apartment, I did not need board approval for the purchase. Now I’m writing my will and would like to leave the apartment to my partner, for him to live in or to sell. But in order for him to assume ownership, would he have to be approved by the co-op board? We are not married. If we were, would he inherit it without board approval? Should I put the apartment in an irrevocable trust to avoid board sabotage?"
Read on for The Times' answer. But first, let's explore just what a co-op building is and how it works.
What Is a Co-op Building?
How Co-ops Work
"Purchase of a membership or shares issued by a housing cooperative buys more than an undivided ownership of the cooperative corporation," explains the National Association of Housing Co-operatives. "It also buys the right to occupy a dwelling unit owned by the cooperative corporation. The ownership and possessory rights can be described as the 'cooperative interest.' The term member or shareholder does not, in usual parlance, include the possessory right but only the corporate ownership interest.
"In most states, this interest is considered personal property, in some others as real estate," continues the association. "But in either event, it is saleable, and it can be inherited. It must be noted in most all cooperatives the purchaser must be approved by the cooperative or the heir qualified under the cooperative’s membership criteria and any agreements with third parties."
Review Bylaws
"It is all in the documents. It is all described in the bylaws," says the association. That is the most important advice for anyone thinking of becoming a co-op member, aka "tenant-shareholder."
It's essential to invest time — and usually legal fees — in ensuring a complete understanding of the bylaws. These define members' rights and duties, including things like pet ownership, noise nuisance, use of communal spaces ... and inheritance.
The Times' Answer to Its Reader's Question
And that was the basis of The Times' answer to its reader's question: Read the bylaws to discover your building's policy on inheritance.
Some will have no problem with a partner remaining in residence. Others grant only spouses a right to remain. Yet others will treat the beneficiary of a will as a new applicant for membership, so requiring board approval. That process could perhaps include running credit checks, assessing that financial resources are adequate, and even requiring interviews and character references.
Some co-ops' bylaws might give absolute discretion to the board to approve or reject an application from a beneficiary. Others might say the board's consent "cannot be unreasonably withheld."
And that's a big difference. In the latter case, the board must justify its decision, perhaps opening it up to legal action if its objections are unreasonable. The knowledge that it might be sued will typically make a board cautious about refusing a beneficiary's application.
Most co-ops allow spouses to remain without any such hassle, and The Times suggests the easiest way forward may be for the reader to marry the partner. But it depends on what the bylaws say.
"Placing your shares in an irrevocable trust will not help you get around whatever succession rules exist in the proprietary lease, because setting up the trust requires board approval," says The Times.
And it makes one more point. If, in the end, the partner cannot remain in the apartment, as the successor, he will still own his co-op shares. And he (the reader specified a male) can sell those and move to a condo, house or more amenable co-op. It's not the same, but it's not nothing.
