The state’s sweeping new Housing Stability and Tenant Protection Act was designed to protect renters from unscrupulous landlords, but the law may be making it harder for some would-be co-op buyers to gain board approval, Brick Underground reports. Specifically, the law caps security deposits at one month’s rent, which short-circuits the common workaround of marginal buyers putting a year or more worth of maintenance in an escrow account to placate a skeptical co-op board.
“The co-op is being treated as a landlord, and a purchasing shareholder is being treated as a tenant,” says Marc Luxemburg, a partner at the law firm Gallet Dreyer & Berkey and president of the Council of New York Cooperatives & Condominiums. “Therefore, a co-op can’t take this advance or deposit in escrow."
As a result, boards could start turning down anyone but the very best candidates. Luxemburg acknowledges this possibility but says there are still workarounds, the most obvious being to use a guarantor who will guarantee the maintenance payments or even put the money in escrow. Other options for buyers include insurance products for security deposits or perhaps negotiating with a seller to pay the maintenance, although Luxemburg acknowledges there aren't many sellers who would be willing to do that.
For people looking to buy into a co-op, one factor working in their favor is today’s sluggish sales market. As the number of renters rises and the number of buyers declines, many boards don't have the luxury of picking and choosing from several strong candidates.
"No one really intended this," Luxemburg says. "The co-op community is pushing back to get the law changed." However, these efforts aren't going to bear fruit overnight. "The legislature is not going to go back into session until January. The way the legislature works, bills don’t get passed until April, so we are looking at six months at least.”
Thinking of buying a co-op or condo? Already bought, and not sure how co-op/condo life and rules work? Learn all about purchasing a place and living in your new community. It's not like renting, and its not like owning a house. What's it like?