Condominiums and co-ops in New York - what's the difference?

While they do share similarities, condos and co-ops are not the same...

While they do share similarities, condos and co-ops are not the same. When buying a New York City property, it is imperative to understand their differences.

Key Features of a Condo

A condominium or “condo” is a private residence or commercial unit in a multi-unit building or complex, which may also include ownership of certain areas outside of the unit itself (roof deck, parking space, etc.). Unlike a co-op, a condo is considered real estate, and the owner holds title to his or her individual unit.  

Condo associations manage the maintenance of the exterior of the building, as well as common areas. The condo association can also establish bylaws that property owners must follow. Bylaws can address a wide range of issues, including use of common areas, pet ownership, parking, and quiet hours.

Key Features of a Co-op

A housing cooperative or “co-op” is a type of property owned by a corporation.  While a condo owner holds a Deed to particular premises, a co-op owner holds shares in the corporation and a lease to a specific apartment (or other type of space). Co-op owners are essentially shareholders and their relationship to the corporation is in the nature of landlord and tenant.

When buying into a co-op, the co-op board of directors must generally vote to approve you as a new shareholder. The application process can include a personal interview and a review of your financial information. A similar vote is also required when you want to sell the property. On both ends, the process can be time-consuming. Sub-leasing your property will likely also require board approval and will usually be subject to various limitations and conditions, which is generally not required for condo owners seeking to lease their properties. 

Comparison of Costs and Fees

There are costs and fees associated with both condos and co-ops. Because they can differ in both type and amount, it is important to do your research.  One big difference is how the two types of properties are taxed. Condos are taxed as real estate and each owner will be billed for property taxes directly. In co-ops, the shareholders pay a proportionate share of the tax bill received by the corporation.

Condo Owners can deduct the taxes and any mortgage interest on their tax return, subject to legal limitations.  In contrast, the property taxes for a co-op cover the entire building and are allocated to owners based on their percentage of interest. In many cases, property taxes are included as part of an owner’s maintenance fees. With regard to tax deductions, co-op owners may also deduct their share of the property taxes and mortgage interest, again subject to legal limitations.

Closing costs will differ as well. One example can be found in the cost of title insurance, which every condo owner should purchase but is not necessary for co-op buyers (since they are merely buying shares in a corporation). It should be noted, however, that while a full title search and report is not necessary for co-op purchases, a “Judgment and Lien Search” is still essential in making sure there are no third-party claims that might interfere with a person’s ownership of the co-op shares.

Key Takeaway

While the terms “condo” and “co-op” are often used interchangeably, they are legally distinct properties. For prospective buyers, it is important to understand the advantages and disadvantages of each housing type and work with knowledgeable professionals to determine which is the best option for you.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Bruce Feffer, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.