Building types
Land-lease co-op
A cooperative that owns its building but leases the ground beneath it from a separate landowner, on a lease with a reset schedule and an expiry date.
What is a land-lease co-op and what is the risk?
Quick Answer
What is the property interest, legally?
- The cooperative corporation holds a leasehold in the land, not a fee interest
- The lease sets the reset schedule, the valuation method used at each reset, and the expiry date
- A reset can raise ground rent sharply, and the corporation passes that through as maintenance
- What happens at expiry, renewal, purchase option or surrender, is a term of the lease and needs reading
- The land can be sold to a new landowner during the lease term
How is a purchase of this type financed?
- Lenders look at the remaining lease term against the loan term and often decline short remaining terms
- A reset falling inside the loan term is underwritten as a payment-shock risk
- Appraisals discount leasehold units against comparable fee-owned co-ops
- Some lenders will not lend on land-lease buildings at all, which narrows the resale pool
Which taxes and building fees apply?
- NYS transfer tax and NYC RPTT apply to the share transfer
- No mortgage recording tax, because the loan is a UCC filing
- Ground rent is part of maintenance, not a separate transfer tax, but it is the number that moves
- A flip tax may apply if the building’s documents impose one
What does the approval path look like?
- Obtain the ground lease and every amendment before the contract is signed
- Confirm the next reset date, the reset method and the expiry date in writing
- Confirm the lender will finance the building on those lease terms
- Board package, review and interview as with any co-op
- Closing scheduled once financing and lien search are complete
How does a ground-rent reset affect maintenance?
The corporation pays the ground rent and recovers it through maintenance charges. When a reset raises the rent, maintenance rises with it, sometimes steeply and with little warning to shareholders who never read the lease. The reset schedule is therefore a budget document, not a formality.
What happens when a land lease expires?
It depends entirely on the lease. Some leases give the corporation a renewal right or a purchase option at a stated price or formula. Some do not, in which case the building and the shareholders face a negotiation with the landowner. That term belongs in the review before contract.
Will a lender finance a land-lease co-op?
Some will and some will not, and the ones that do usually want the remaining lease term to extend well beyond the loan term. A reset inside the loan term is treated as payment-shock risk. Confirm the lender is comfortable with the specific building before signing.
What else should you read before closing?
In the glossary
- Co-op lien searchThe search performed on a co-op purchase covering UCC filings, judgments, liens and unpaid building charges tied to the shares and to the selling s...
- Flip taxA transfer fee charged by a co-op or, less often, a condominium when a unit changes hands. It is a creature of the building's governing documents, ...
- UCC searchA search of UCC filings for security interests in personal property, run against the seller and, on entity deals, against the entity itself.
- CovenantA recorded promise or restriction that runs with the land and binds future owners. Restrictive covenants limit what the property may be used for or...
- Transfer tax (RPTT and NYS)Taxes on the conveyance itself, one City and one State. Rates step up at higher prices, and who pays is set by custom and then confirmed by the con...
Questions this raises
- What documents do I sign at closing?Note, mortgage, title affidavit, settlement statement and transfer tax returns for buyers; deed and releases for sellers. What each document actual...
- What do I need to bring to a closing in NYC?Photo ID, funds in the form the agent instructed, a checkbook for adjustments, and every signer. The New York City closing checklist for buyers and...
Building types
- Standard co-opThe ordinary New York City cooperative: you buy shares in a corporation and receive a proprietary lease to occupy a specific apartment.
- HDFC co-opAn affordable cooperative formed under Article XI of the Private Housing Finance Law, with income caps on purchasers and usually a restricted resal...
- CondopA building split into two condominium units, one commercial and one residential, where the residential unit is owned by a cooperative corporation.
- Mitchell-Lama co-opA limited-equity cooperative in the State and City Mitchell-Lama program, sold from a waiting list at a formula price rather than on the open market.
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Legal Disclaimer: This page is general information about New York practice. It is not legal advice, it does not account for the terms of any particular contract, building or transaction, and reading it does not create an attorney-client relationship. This is attorney advertising. Prior results do not guarantee similar outcomes.