Establishes a mechanism to address problems created when a cooperative or condominium sponsor suspends efforts to sell apartments in the building being converted

Summary of specific provisions

The bill adds a new subdivision 8 to section 352-eeee of the General Business Law to provide that any unsold dwelling unit in a cooperative or condominium apartment building must be offered for sale when it becomes vacant, unless: (a) the offering plan stated that unsold dwelling units would not be sold when they became vacant and also warned purchasers of the risks of ownership in a building where unsold dwelling units are not offered for sale; or (b) the sponsor or unit owner obtains the consent of a majority of the unaffiliated members of the board of the cooperative or condominium. If neither of these conditions are met, then the apartment must be offered for sale for a period of at least one year. If the apartment cannot be sold during that time period, then the sponsor or unit owner may rent the apartment for up to one yeas, and the sponsor must send a copy of the lease to the board of directors of the cooperative corporation or the board of managers of the condominium association. After the termination of the lease period, the apartment must be offered for sale again for another one-year period. The prohibition against renting the apartment, except with the permission of the board or after a one-year sale period, continues to apply until the apartment is sold.

The bill also includes an exemption from this sale requirement for owners who have purchased a dwelling for their own personal use or the use of a family member but who are not presently occupying the unit pending approval of the co-op board. In addition, the requirement does not apply to units owned by the cooperative corporation or the condominium association. The term "unsold dwelling unit" is defined for the purposes of this new subdivision as the shares and proprietary lease in a cooperative or a unit in a condominium that was not sold by the sponsor, and includes units designated by the sponsor as "unsold shares" and "unsold units."

Justification

Cooperative and condominium apartment ownership in New York State is founded upon the principle of joint ownership of a building by its tenants. This unique form of ownership allows individual residents to hold an equity interest in their dwellings, while at the same time creating a mutual interest among all of the unit owners in the care and upkeep of the building. This concept of joint ownership forms the basis for the offering plan which is filed with the Attorney General,

and which offers the dwelling units for sale to the public. As a general rule, these offering plans explicitly state that the principal purpose of the offering plan is to sell the apartments for use as homes by purchasers.

Unfortunately, in some circumstances building sponsors have stopped offering units for sale long before all the units have been sold. In many instances the sponsor's intention in converting the building to cooperative or condominium ownership was to remove vacant apartments from the rent regulation laws, and to allow the sponsor to charge market rents for the vacant apartments. As a result of the sponsor's decision to rent the units rather than sell them, many apartment purchasers have found that they are not residing in a building where the other tenants are also owners, as was intended by the statutory provisions authorizing building conversions. Instead, they are minority owners in a building that remains operated as a rental by the sponsor (who acts as the landlord) and in which vacant apartments are rented rather than being offered for sale. The consequence of the sponsor's action is that the building continues to be maintained by the sponsor in the same manner as when the building was a rental, but the purchasers are now required to contribute to the cost of its maintenance and repair.

As minority shareholders or unit owners, however, these individuals have virtually no control over how the building is operated. Moreover, as a result of the large number of unsold apartments in their building, the purchasers find themselves unable to sell or refinance their apartments. These factors effectively trap the purchasers into their existing apartments, which in many cases they can no longer afford or are no longer adequate for their growing families. These consequences are particularly inequitable because the determination of the sponsor to stop selling apartments was never disclosed to the purchasers of the initial apartments. These purchasers were, in effect, defrauded into believing that ultimately all of the apartments would be sold, and that they would be living in a building that is entirely owned by individuals with common goals and interests. This bill seeks to address this problem by establishing a process for determining whether a building sponsor may choose not to sell vacant apartments.

Specifically, the bill provides that vacant, unsold apartments must be put on the market unless the offering plan specified that such apartments would not be offered for sale. In the event the offering plan did not contain the requisite disclosure, then a majority of the members of the board of directors or board of managers who are not affiliated with the sponsor must vote to permit the sponsor or other unit owner to withhold the apartment or unit from sale. In those circumstances where the apartment must be offered for sale, the apartment must remain on the market for at least one year. If the apartment remains unsold after that time period, then the sponsor or unit owner may rent the apartment for up to one year, after which it must be offered for sale again for another one-year period. The prohibition against renting the apartment, except with the permission of the board or after a one-year sale period, continues to apply until the apartment is sold. The bill contains an exemption from this sale requirement for owners who have purchased a dwelling for their own personal use or the use of a family member but who are not presently

occupying the unit. Finally, the sale requirement does not apply to units owned by the cooperative corporation or the condominium association.

Prior legislative history

2009-10 - A.835 Referred to Housing 2007-08 - A.3132 Referred to Housing 2005-06 - A.1462 Referred to Housing 2003-04 - A.3293A Referred to Housing 2001-02 - A.8986 Referred to Housing

Fiscal implications

None.

Effective date

This act takes effect immediately and applies to all dwelling units in cooperative and condominium buildings that become vacant after such effective date.