Legislature Modifies HSTPA to Assist Co-ops

Cooperative corporations, unlike condominiums, rely on a landlord-tenant relationship under a proprietary lease (which governs the occupancy of the apartment). As a result, boards of directors are considered landlords and purchaser-shareholders are considered tenants, though, in each case, not in the traditional sense. Cooperative corporations are also not set up as a for-profit business, rather they are private housing corporations intended generally for occupancy by its shareholders and are governed by a proprietary lease and by-laws which sets forth the rights of each party and terms of governance.

When the Act was signed into law, cooperative corporations and their managing agents, with decades of experience, were forced to pivot and operate contrary to the many years of established law and practice. One such instance was with applications from potential purchasers, who apply to the board of directors seeking its consent to purchase. Among the litany of requested items, and to ensure that each applicant has the financial ability to pay its obligations when due (to the cooperative, a lender and/or otherwise), a board will request detailed financial information regarding the applicant(s). Sometimes, particularly with first time purchasers, the financials are less than stellar, albeit due to poor, little or no credit history, a change in employment, or otherwise. To overcome these issues, as has been common practice, boards looking to approve an otherwise viable candidate would request maintenance in escrow (in some instances as much as two years), as additional security. Under the Act, such security was limited to just one month's maintenance and no board could accept prepaid maintenance either, thus potentially reducing the number of qualified cooperative buyers and contrary of the purpose of the Act. Under the new legislation, additional security (including maintenance escrows) and even prepaid rent is again permitted for purchasers of owner-occupied apartments, thus boards can now approve purchasers whose financials were otherwise borderline and whom otherwise may not have been approved.