- Ownership of a condominium is ownership of real property, entitling the owner to the "entire bundle of legal rights."
Those who reside in a co-op own shares in corporation which are personal property, "chattel," not real property. The real estate is owned by a corporation "in severalty," separate and apart from anyone else, including the share holders.
The owner of a condominium unit owns the space between the walls for which the owner receives a deed and an undivided interest in the common elements. For instance, if there are 200 condominium owners, each owns a one two hundredth interest in the common elements.
The owner of a condominium unit may pay cash for the unit or finance the purchase with a mortgage, and the interest paid on the mortgage may be deducted from the owner's federal income taxes.
The unit owner receives a tax bill for the property tax on their unit and the payments of these taxes are also deductible from their federal income taxes.
All of the unit owners pay "common charges" for the costs associated with the maintenance of the common areas that they own in common.
A condominium association is governed by a Board of Managers, not to be confused with a Property Management Company that may be hired by the Board of Managers to provide services such as custodial and maintenance.
Condominium Associations adopt "by-laws". (projetsdomiciliaires.ca)
Condominium Associations adopt "by-laws" intended to protect the interests of the unit owners. These "by-laws" typically address policy issues with respect to the right of a unit owner to lease the unit to a tenant, the payment of a transfer fee to the Condominium Association should the unit owner sell the unit, and the granting of a "right of first refusal" to the condominium Association should the unit owner put the unit on the market for sale.
A residential cooperative, on the other hand, is managed by a Board of Directors, also not to be confused with a Property Management company, elected by the shareholders either in-person or by proxy at annual meetings of the corporation.
Residential cooperatives also adopt by-laws which address issues such as the right of the Board of Directors to approve or disapprove the sale of the shares to anyone for any reason or no reason that does not violate law, such as Fair Housing Laws.
The owner of the shares receives a proprietary lease for the unit; the by-laws may prohibit the sub-lease of the unit to a third party without the consent of the Board of Directors.
The purchaser of the shares may finance the purchase of the shares with a loan, but this loan creates a lien against the shares, not the against the property owned by the corporation. The IRS allows the interest on this loan to be deducted from the borrower's federal income taxes as if it were interest on a mortgage.
In a residential cooperative the shareholder must pay "maintenance fees" for the maintenance of the property, including the mortgage on the property owned by the corporation, taxes, insurance, and other costs associated with maintaining the property.
It is also common for a seller of the shares to pay a transfer fee to the cooperative, usually a percentage of the sale of the shares. This fee is known as a "flip tax."
There are many other issues that arise with respect to condos and co-ops, more than could be included in the space allotted for this article.
Perhaps in future articles we could address issues such as, does a Board of Directors have to give a reason for rejection of an applicant who wishes to purchase the shares in a co-op?
What constitutes "an unreasonable restraint on alienation" with respect to condominiums?
These issues are controversial and often misunderstood.
John is a St. John's University graduate, licensed Real Estate Broker, DOS Certified Instructor, and real estate consultant. He previously taught at NYU, LIU, and The Cook Maran Real Estate School, which he helped found.