Why Does the Board Want Four Years' of Maintenance in Advance?

July 31, 2015 — I live in Europe for half the year. I'm trying to buy an apartment in Queens, but the board is asking for four years of monthly maintenance charges to be escrowed. Why?

Purchasing a cooperative is subject to a board approval process that some prospective purchasers may find burdensome, but which protects all shareholders. Absentee shareholders who may hold foreign bank accounts pose additional obstacles preventing boards from finding easy remedies for outstanding obligations.

Boards will restrict the amount of financing permitted and/or require a maintenance escrow account to be established as an alternate means of receiving payment should someone fall in arrears. This permits the cooperative convenient access to the shareholder's funds to cover arrears, mitigating a potentially lengthy collections process while allowing the cooperative to meet its financial obligations.

Escrow requirements vary based on individual buildings. Boards may be less restrictive, not implementing an escrow requirement, offering less financial protection to the cooperative, and making it more difficult to collect arrears. Or they may require four years of maintenance, which will help indicate the purchaser's desire to reside in the cooperative, confirm his or her financial stability, and lessen the potential for violations of the proprietary lease or house rules. It is advisable for the purchaser's attorney to review the escrow agreement to see the details of where the account will be established, the terms governing the escrowed money, and when it can be disbursed to cover obligations of a shareholder.

Boards establishing escrow requirements must consider the financial implications of the selling price of the apartment compared to the value of four years of maintenance. The latter helps ensure marketability of the apartment while protecting the cooperative.

Robert Ferrara is president of The Ferrara Management Group.