< Back to Previous Page New York Bill Regarding Cooperative Apartments Many cooperative apartment corporations have experienced serious financial problems when sponsors who retained a large percentage of unsold shares were unable to meet their ongoing maintenance obligations. Sponsor maintenance defaults have serious consequences for cooperatives, including possible mortgage foreclosures and total loss of equity for individual purchasers. This bill addresses problems of maintenance defaults by requiring sponsors of cooperative conversions to meet increased minimum net worth requirements, to maintain funds in escrow to secure payment of ongoing financial obligations, and to make periodic disclosure of financial obligations. These changes will ensure that sponsors have liquid assets that bear a reasonable relationship to their ongoing financial obligations, that those obligations are secured for some period into the life of the cooperative, and that shareholders receive timely disclosure of a sponsor`s financial problems. In most areas of New York State, the owner of a rental apartment building is currently permitted to convert the buildings to cooperative or condominium ownership under a "non-eviction" plan even if only 15% of the tenants occupying the building agree to purchase their apartments.  Even fewer protections exist in New York City, where a conversion can be declared effective even if none of the tenants agree to purchase, so long as 15% of the units are sold to individuals who state that they or an immediate family member will occupy the apartment. Significant problems can arise when a sponsor who owns a large percentage of the shares defaults and the cooperative is suddenly faced with a tremendous gap in its operating budget due to the loss of maintenance payments. Frequently, foreclosure proceedings are commenced.  Even if foreclosure can be avoided, apartment owners find that banks are no longer willing to provide loans for buildings where sponsors still hold a large percentage of the shares. This means that the mortgages cannot be refinanced and individual apartments become impossible to sell. This bill seeks to ensure that adequate protections are in place to prevent similar problems in future cooperative conversions. Specifically, the bill provides that a non-eviction plan may not be declared effective unless at least 35% of the tenants purchase their apartments. In addition, these individuals must be tenants in occupancy at the time of the filing of the conversion plan, rather than individuals who simply assert that they intend to occupy the apartments after the purchase. Finally, the bill also grants tenants an exclusive 90-day period in which to purchase their apartments, in order to give the tenants time to consider the conversion offer without fear that their apartments will be sold to someone else. Enactment of this legislation will help to ensure that future cooperative apartment buildings are not as reliant upon the future financial stability of the sponsor. In addition, the new requirements will grant tenants who purchase their apartments greater control over the building, thereby ensuring that decisions regarding maintenance charges and building services are made by individuals who live in the building, and not by non-occupying owners who are interested only in obtaining the greatest profit from subtenants. Currently, a sponsor of a cooperative or condominium conversion can retain complete control of the newly formed board of directors or board of managers for up to five years, depriving purchasing shareholders and unit owners of decision-making authority. Sponsor-controlled boards sometimes make it difficult, if not impossible, for shareholders and unit owners to obtain information to which they are entitled.  Consequently, some "cooperatives" offer little cooperation, but simply present the purchasers and non-purchasers with a sponsor, rather than a landlord, controlling decision-making and access to information. This runs directly counter to the historical justification offered for the cooperative/condominium conversion process, which is intended to afford residents a greater role in maintaining and improving building conditions as owners, compared with their status as mere tenants. In order to establish a more appropriate election process, this bill would require that all offering plans or amendments state that within 60 days after title is transferred to a cooperative corporation or the first condominium unit is closed, an election must be held for a new board. The election must result in a board with at least one member who is a resident shareholder or unit owner and who is not the sponsor, or a person associated with the sponsor. This guarantees that at least one board member independent of the sponsor would have access to documents and information reviewed by the board. In addition, participation by an independent board member would encourage greater discussion and debate of issues. In addition, all plans must provide that control of the board would be transferred from the sponsor to resident shareholders no later than two years after closing. A two year period provides the sponsor with adequate time to establish the necessary administrative and operational mechanisms, and for residents to become familiar with management procedures. Phased developments and timeshares are exempted because, unlike cooperatives and condominiums, sponsors generally do not complete them at one time, making a guideline for board control impractical. Contact New York cooperative apartment lawyers from the law firm of Weinstein, Chase, Messinger and Peters, P.C.