Future shock. It’s an often-overlooked detail that can sneak up unannounced: the expiration date of a co-op’s proprietary lease. The date, which appears on the first or second page of every proprietary lease, was required when the proprietary leases were first approved. If it is less than 30 years from today, new purchasers will find it increasingly difficult to obtain 30-year mortgages. Why? Because when the lease expires, the co-op corporation will cease to exist, and the shares in the corporation will have zero value.
“It would be suicide to let the lease expire, because you would unwind the corporation,” says William D. McCracken, a partner at the law firm Ganfer Shore Leeds & Zauderer, who regularly confronts this obscure detail when advising his co-op clients. “The last two proprietary lease amendments I’ve done, I advised the boards to extend their expiration date,” he says. “One of the buildings had an expiration date of 2048 — just 25 years from now. I usually advise boards to extend the date for something less than 100 years. Different lawyers might say different things.”
Seize the moment. The vast majority of proprietary leases require a vote by shareholders — usually approval by a two-thirds supermajority — to make any amendment to the proprietary lease, including an extension of the lease’s expiration date. “It’s not silly,” says Leni Morrison Cummins, a member at the law firm Cozen O’Connor. “If a co-op board is considering an amendment to the lease and it’s going through the task of garnering support from shareholders, it’s prudent to extend the expiration date if it’s around 30 years away.”
There’s no hard-and-fast rule. “Any time I look at a proprietary lease and see an expiration date in the 21st century, I recommend extending it,” McCracken says. “Certainly if you’re going to amend your proprietary lease to, say, institute a flip tax, then you should extend the lease’s term while you’re at it.” This detail is usually caught by a competent lawyer, but there is an added backup: Whenever a prospective buyer considers purchasing a co-op apartment, the lawyer and lender will perform due diligence in examining the financial health of the co-op. Checking the expiration date on the proprietary lease is — or should be — one of their duties.
“It’s one of those things you don’t think about until you have to do it,” McCracken says, adding that he has never seen a housing cooperative corporation dissolved because its proprietary lease was allowed to expire. “But stranger things have happened.”