Higher standard. Gov. Kathy Hochul recently signed a law that raises the bar for Mitchell-Lama co-ops to opt out of the affordable-housing program and convert their apartments to market rate. The new law requires that 80% of residents — up from 67% — must choose to opt out of the program. It also requires Mitchell-Lama co-op boards to hold six shareholder meetings a year, and if a vote to opt out fails, it places a five-year moratorium on a new vote.
Added burden. The new requirement for six annual shareholder meetings could also prove onerous for boards. “Without further guidance from the state, boards will have to decide exactly how they want to run the meetings,” says Michael Reilly, a member at the law firm Norris McLaughlin. “Is it just shareholders sitting and listening or participating in dialogue? Will boards need to prepare a formal agenda? Either way, you’re creating a new way of running a business for some buildings, which is going to be a challenge.”
The backstory. Under the current Mitchell-Lama program, cooperatives and rentals are required to remain affordable for 20 years in return for tax abatements and other considerations. After that time, they could opt to charge market-rate rents or sell the apartments and create a condominium. Traditionally, shareholders were able to buy their apartments at about 30% of their market value and were then free to flip them or continue living in them. The co-op lost tax abatements and other perks, but shareholders usually experienced a financial windfall.
The opposition. The law has dismayed shareholders and sponsors in Mitchell-Lama co-ops who are hoping to transform their apartments to market rate. “Some people believe this is
a mechanism to prevent all buyouts because the requirements are so high,” says Scott Mollen, a partner at the law firm Herrick Feinstein. “This law makes it very difficult — not impossible, but very difficult — to opt out. It empowers the minority to control the majority, even a big majority.”