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I tried to post this question a few days ago but it doesn't seem to have made it onto the board. Here goes again:
What are a co-op sponsor's obligations with regards to selling unsold shares? When a rent-controlled sponsor unit becomes vacant is the sponsor obligated to sell the apartment or can he decide to retain it to occupy himself or to allow a family member to occupy it? Is there a general rule here or does it depend on the specific co-op's offering plan?
Thanks for any insight.
An offering plan might specify that a sponsor must sell when she can, but I've never heard of one with that requirement. Sponsors write the plans, and there's no reason they'd want to hem themselves in.
More recent plans do the opposite, specifically in the up-front Special Risks section, e.g. "8. (a) Sponsor has reserved the unconditional right to rent Units rather than sell Units. Because Sponsor is not limiting the conditions under which it will rent rather than sell Units, Sponsor is not committed to sell more units than the 15% necessary to declare the Plan effective and, therefore, owner-occupants may never gain effective control and management of the Condominium."
All that said, most sponsors will sell when they can. Some examples of those who haven't are 370 CPW, the Dorchester on W 68th, and 230 E 79th. For them its been worthwhile to get market rents when a non-purchasing tenant vacates.
That can kick a sponsor in the butt, though, as at 230 E 79th, where the sponsor owns 59% of the shares and is now trying to sell some and get his percentage down, because banks are understandably reluctant to lend there.
1. New York's highest court, the Court of Appeals, ruled in 211 West 232rd Street
Owners Corp. v. Jennifer Realty, 98 NY2d 144, 152-153, that a Coop Sponsor is
under an implied duty to sell enough Sponsor Unsold Shares to make its sponsored
Cooperative eligible for conventional underlying mortgage financing, and otherwise
a viable functioning entity
2. most Sponsors are likely to have complied with that ruling since its 2002 issuance
3. if they have, they should be ableto retain a vacated unit and rent it out, at will
Thanks for the responses. What about the sponsor deciding to occupy the units himself or move his family in as they become available?
You are asking for pretty specific legal advice on an internet discussion board. Why don't you hire a lawyer that specializes in this?
1. your sponsor could move into one or more of his apartments by himself or via
members of his immediate family but doing so would destroy his status as a
Holder of Unsold Shares and he is very unlikely to, unless it is a prime
building in a prime neighborhood
Another example is http://streeteasy.com/nyc/building/frost-house
The sponsor still owns 51 apartments (31% of the shares) 25 years after conversion. Only nine of those 51 are occupied by an original non-purchasing RC/RS tenant. The rest are rented at market rates.
That, of course, is one of the reasons why buildings converted in the first place. If it stays a rental, the apartment stays RS when a tenant vacates, and the owner gets only a lousy vacancy increase. If it's converted, a vacated RS tenant puts the apartment out of RS altogether and the sponsor has the choice of whether to sell or to rent at market.
Most would rather sell, but a few prefer the big rental bucks.
This co-op is suing the sponsor to force it to sell: https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=K4eO5pwXYW6yHJPs26_PLUS_p0A==&system=prod
Here's the sponsor's answer: https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=G21zzyc1wZzdav8IDUpnvw==&system=prod
Oops, I misread. 14, not nine, occupied by RS tenants.
After the suit was filed, the sponsor closed on #5E, so it still owns 50.