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What is a Cooperative Apartment?

Distinctions between Residential Homes and
Cooperative Apartments


What is a Residential Home?

A residential home is considered a one to four family house and is the most common form of home ownership. The purchaser receives a deed to the home and the land that gives "fee-simple" ownership of real property. The purchaser is solely responsible for payment of all real estate taxes, insurance, utility and maintenance costs.

What is a Cooperative Apartment?

Coops are common in New York City but uncommon elsewhere. A cooperative corporation owns the building that includes the individual apartments and the common areas. The corporation issues shares of its stock (the Stock Certificate) allocated to each apartment based upon its size and location within the building. As a shareholder in a corporation, you are entitled to a lease from the corporation (the Proprietary Lease) giving you the right to live in the apartment. Most cooperative corporations have a mortgage on the entire building (the Underlying Mortgage) and each shareholder may obtain their own loan for the purchase of their apartment. The Stock Certificate and Proprietary Lease allocated to the apartment are pledged to the lender as security for the loan and a Uniform Commercial Code Financing Statement (UCC-1) is filed in the county where the apartment is located so that the lender has a lien on the Stock Certificate and Proprietary Lease. As a coopowner, you pay a monthly maintenance fee to the coop corporation which consists of your proportionate share of the cost of operating the building. Typically, operating costs for the building consist of property taxes, monthly payments on the Underlying Mortgage, insurance, utilities and labor costs. You are entitled to deduct a portion of your maintenance payment from your taxable income. Your right to alter the interior of your apartment will be proscribed by rules of the coop and may be subject to the consent of the Board of Directors. When you purchase or sell a coop, you must obtain the approval of the Board. The coop corporation is governed by an elected Board of Directors whose powers are derived from the certificate of incorporation, bylaws, rules and regulations and the Proprietary Lease. The cooperative's Board of Directors makes all decisions as to the maintenance paid by each shareholder, the upkeep of the building, the amount of the Underlying Mortgage, right of sublet, who will be approved for purchase, repairs and alterations of individual apartments and payment of all building expenses.

Monthly Expenses (also known as "Carrying Charges")

Carrying Charges are the costs associated with the upkeep and operation of a residential home, coop or condo apartment and are in addition to your monthly loan payment. Carrying Charges are called "maintenance" in a coop and "common charges" in a condo and typically cover a share of the costs of operating the building such as the cost of utilities for the common areas of the building, salaries for building employees, real estate taxes and property insurance. These costs are apportioned to each coop or condo unit owner by the apartment corporation or condominium association on a monthly basis. In the case of a coop, the monthly maintenance payments also cover local real estate taxes on the building and payments on the building's underlying mortgage. For residential home and condominium apartment owners, real estate taxes and homeowners insurance are an additional expense that should be factored into the calculation of the anticipated monthly expenses.

Maintenance Charges (Coops only)

Because monthly maintenance charges include a portion of the debt service on the building's underlying mortgage and the real estate taxes, a portion of the maintenance (usually around 50%) qualifies for an income tax deduction for the coop owner.

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