Many affluent investors would prefer to purchase their NYC co-op within the structure of an LLC or Trust, as these structures ensure financial privacy and minimize personal liabilities. In addition to these benefits, owning a NYC co-op loft under an LLC or Trust will also lessen the chances of having a residency audit, which is typically reserved for non-NYC residents who are exempt from paying the NYC residency tax.
What is a Co-op?
A “co-op” is a specific type of real estate that is common in NYC. In this scenario, a corporation owns the entire building. Unlike traditional real estate transactions, investors who purchase into a co-op, are not actually purchasing real estate and do not receive a deed. In actuality, they are purchasing shares of the corporation that owns the building and as a result will receive stock certificates and a proprietary lease that grants that investor that right to occupy and use a specific unit within the rules and regulations set forth by the co-op board.
Most co-ops have a volunteer co-op board of directors that is elected by the existing shareholders. The board is responsible for creating and enforcing the rules and regulation for the building and its units. These bylaws can dictate anything from the type of renovation projects that can be conducted inside the units, to whether pets are allowed on the premises. Co-op boards are extremely powerful and can even opt to evict a shareholder and force them to sell their unit, if they are not in compliance with the rules of the premises.
Corporate Ownership of Co-ops
The rise in income and affluence in NYC has resulted in an increased demand for co-op lofts, specifically among members of the entertainment and finance industries. These high-profile buyers demand financial privacy and protection from personal liability through the use of asset protection vehicles such as LLC’s and Trusts. Although owning real estate within one of these structures can provide you with enhanced privacy and security, the boards of many co-ops have traditionally frowned upon this structure. The reason for this is generally because the members of the co-op want to intimately know the persons who will be joining the co-op as new residents. It is for this reason that co-op boards typically shy away from corporate owners, such as an LLC or a Trust, as they would rather work directly with a physical person in order to rectify any future issues.
In an attempt to be more accommodating, co-op boards have begun to allow for more corporate owners of co-op lofts, however, the attorneys for the co-ops have created a multitude of strategies to protect the interest of the co-op, while minimizing some of the inherent benefits of purchasing real estate within an LLC or Trust.
The co-op board’s primary concern is to protect the building and its current shareholders. In order to accomplish this, many co-op boards will require that the members of the LLC or the manager/beneficiary of the trust sign a personal guaranty for the property and any financial obligations such as maintenance or special assessments. This would make them personally liable for any issues pertaining to the co-op, even if it is “owned” by an LLC or Trust. While this drastically increases the potential liability that an investor has with the co-op board, investors are still able to leverage the benefits of LLC’s and Trusts as it pertains to achieving financial privacy and protection from the outside world.
As you go through the process of viewing potential co-ops to purchase, you will need to seek the counsel of a real estate attorney that specializes in NYC co-ops. This is a critical step in the purchasing process, as your purchase must be approved by the co-op board and it is inevitable that the attorneys for the co-op will have an abundance of legal stipulations that you will need to adhere to once you purchase the co-op and this is especially the case if you choose to acquire a NYC co-op loft within an LLC or Trust.