special assessments

Most co-ops assess back the $400(?) RE-tax rebate each apartment gets from the city. Or it might just make an assessment to cover a budget shortfall, rather than raise maintenance.

Yes, as NWT says, certain tax rebates that coop owners are entitled to in a given year from the city are often collected by the coop and retained as a "special assessment." It is a relatively painless way to collect some revenue for the coop since owners don't really miss money they never actually had. The most typical of these special assessments is for the STAR rebate program. It is in the coop's interest in terms of preserving/enhancing value of the apartments to keep maintenance low. These assessments may allow the coop to shave a percent or two off the maintenance and to pay for little projects that arise.

Don't expect a coop's financial report to be clear. That's part of NY Coop 101.

Sometime around 2004 coop landlords discovered that they could simply take tax rebates such as the "STAR Rebate" or the "Cooperative and Condominium Tax Abatement" away from the tenant shareholders in the name of budget management for the "corporation."
It quickly took hold and is now widely practiced mostly in the larger coops where the sponsor remains perpetually entrenched in the operations of the building.

You can expect Any periodic financial relief or windfall that the building may enjoy to be taken and hidden in the abyss of the "financial report."

In my experience as a coop dweller, maintenance fees actually increased faster after my coop began this practice.
There should be legislation that requires coops who garnish rebates and charge flip taxes to put those funds into separate account set aside specifically for "unplanned expenses" which could be easily reviewed by shareholders. Then balance the budget and present it to the shareholders in a form that they can easily understand.

Oh, and if there really IS an unexpected common expense or repair for the building you can rest assured that there will STILL be an assessment for that.

This, along with many other financial inequities such as "flip Taxes" are illegal in condo's and any other form of actual home ownership.

Next time you hear someone arguing about the difference in carrying costs of condo vs coop remember to factor in all of these hidden "taxes" and garnishments before making any conclusions as to which of these institutions is more or less expensive than the other.

Coops should be required to balance their budgets without perpetually garnishing windfalls that rightfully belong to home owners… oh, I mean "shareholders".

I'm sorry andwin, but the hostility toward coops which collect these assessments seems odd to me. No one is getting rich at a coop and the money is all going into coop accounts. The board isn't flying to Tahiti for the annual meeting with the funds. If the funds are not collected, the reserve fund suffers or the maintenance will have to be increased if the funds are regularly needed for little projects. If either the reserve decreases or maintenance increases, value of apartments decreases. So I do not understand where your anger comes from--do you really want higher maintenance fees in return for getting the rebates in your pocket?

Second, this nonsense about "the sponsor" is just that: nonsense. Most coop conversions in NYC occurred many years ago and sponsors in most have long ago lost any influence in the buildings as units have traded hands from the sponsor to shareholders. Most coops have only a minority of sponsor-controlled apartments and in many it is a miniscule handful. So on a 6 member board, if the sponsor retains a single seat, the sponsor's influence over shareholders is essentially non-existent. Could you explain then what you mean in the diatribe-like comments about coop sponsors?

In addition, funds collected through special assessments do not go into general operating accounts in the coops I know. The funds go into capital reserve funds. I'm not sure, but that may even be mandatory. Others may know more. But frankly, I don't think it makes much of a difference. And you do get a benefit for these monies being collected through a special assessment versus maintenance increase (beyond the benefit of preserving/enhancing value of the apartments upon resale). When you sell, you get to total up all the special assessments you have paid over the years and deduct that amount from any capital gains. Thus, you would be foolish, if given the choice, to increase maintenance versus paying a special assessment since you cannot ever reduce capital gains by amounts paid through ordinary maintenance--even if that maintenance money goes for the building's capital projects. The IRS has a pretty bright line rule, for simplicity's sake, that deductions from capital gains of special assessments are accepted but there is not to be any parsing in terms of capital gains deductions of maintenance fees that went to capital projects.

Fully agree with kylewest. As I look at co-ops during the purchase process, I'd rather see this practice than regular maintenance increases, which are generally permanent. The practice of assessing shareholders an amount close to or equal to the real estate tax abatement that they would have otherwise received from the state/city is a pretty painless way of funding a capital reserve. Smart buildings that do this, and are disciplined about it, tend to be more attractive to me. As a buyer (future owner), what would I rather have? A predictable re-capture of this abatement by the co-op each year and flat monthly payments to the co-op, or getting the abatement passed on to me but the potential for an unexpected assessment at a time when I want it the least? The former, absolutely.

What is more, NYRocks, is that andwin's conclusion that coops' collecting these rebates somehow caused or suspiciously coincided with maintenance increases at his coop is outright bizarre. For almost a decade now, the costs of operating a building have been increasing annually at a greater rate than in the past. Labor costs, fuel, taxes, water bills have all been increasing at higher rates than in the past, thus necessitating increases in maintenance to cover the added costs. Special assessments cannot be used to defer these costs so maintenance must be increased. But at least the rebates that the building collects can be used to pay for capital projects that would otherwise result in depletion of reserves, increased maintenance fees or other special assessments.

Kyle - generally agree unless the argument is that by having more money floating around to spend the coop lacked discipline and spent more than it would have otherwise. I'm no expert in co-op finance but in the business world I see it all the time: companies with excess cash on the balance sheet generally have a lower bar for investments and a little less attention to cost cutting vs. when they need to make tough decisions about where to get the cash from. I have to imagine that a Coop negotiating a contract that can be funded out of reserves vs. through assessment may act the same way (even if subconsciously)... Part of it is just a philosophical exercise - does the board thing of refunds as "the shareholder's money" or the "Coop's money". The more they start thinking of it as the latter, the more likely they take the eye off the ball on keeping costs low (and next thing you know you have gold plated bike racks in the storage room)!

Freebird: I understand your point. It is, however, admittedly a speculative view which I find is not borne out in practice by the vast majority of coops. Any responsible board in well-run coops is ever-conscious of keeping down maintenance, avoiding special assessments to the extent possible, and keeping reserves to at least 6 months+ of building operating expenses--all in the name of enhancing the value of the building's apartments. A board that fritters away unnecessary dollars is not likely to last very long. Cautious, conservative, prudent, forward-looking boards thrive. In any given year, a building (like a house) requires capital upkeep. Not a year goes by that something isn't needed, be it replacing lobby finishes that have become worn by the elevators or entrance, upgrading lighting fixtures to more energy efficient types, repairing leaky sidewalk vaults or rusted external stairs that porters use to haul up the garbage to the sidewalk, etc. There is always something. Best these things be paid for with assessment monies from STAR programs and the light so the shareholders can eventually claim the deductions. The bids for these little things don't typically vary too much if they must be bid at all. Major contracts for the large projects (window replacement, new roofs, elevator or electrical upgrades, upgrades to switch to mandated new fuel) are subject to a great deal more scrutiny. They are usually discussed at annual shareholder meetings where the competitive bids might even be revealed and the board's selection process described. At least that is how many responsible well-run coops work. If laziness enters into the board's decision making, the sharp questioning of shareholders at these meetings can turn it up and if the shareholders disagree they can elect new members at the election.

There are, of course, aberational situations involving the odd building here or there, but you will find that for coops, condos, rentals--there are always outliers.

Kylewest wrote:
"... I'm sorry andwin, but the hostility toward coops which collect these assessments seems odd to me ..."

I don't think my post was hostile. It was actually quite factual and on topic. But parties with a vested interest in perpetuating the NY Coop model might consider it hostile I suppose.
For the past 3 decades or so Coop Landlords have had a steady supply of unsuspecting and uninformed prey. But we're entering into the information age and people are paying closer attention to obvious and fundamental inequities that coop "shareholders" are subject to.
And Please don't try to create the illusion that I'm some sort of disgruntled lone-gunman with hostilities towards Coops. Anyone with an internet connection can see for themselves that there is a growing awareness of these issues. I know I'm outnumbered on this particular forum due to the fact that it's populated mainly by NY Real estate professionals. But there are many, many people finding a voice in these issues. And eventually politicians will be forced to respond to their constituency rather than special interests.

Kylewest wrote:
"... If the funds are not collected, the reserve fund suffers or the maintenance will have to be increased if the funds are regularly needed for little projects ..."

If by "the funds" you mean garnished tax rebates and flip taxes then the Coop board is not balancing the budget fairly and efficiently. As I've pointed out, these tactics are illegal in Condos and any other true forms of home ownership.

Kylewest wrote:
"... So I do not understand where your anger comes from--do you really want higher maintenance fees in return for getting the rebates in your pocket?..."
Again, There is no inherent "anger" in my post. I simply think that there needs to be significant reform in the way that Coops are governed.

Kylewest wrote:
"... Could you explain then what you mean in the diatribe-like comments about coop sponsors?..."

Could you point out what pert of my post is a diatribe?
Actually, one could make the argument that your vehement defense of Coops in your numerous posts is evidence that you have a vested interest in perpetuating this institution.

Kylewest wrote:
"... When you sell, you get to total up all the special assessments you have paid over the years and deduct that amount from any capital gains. …The IRS has a pretty bright line rule ... that deductions from capital gains of special assessments are accepted but there is not to be any parsing in terms of capital gains deductions of maintenance fees that went to capital project ..."

The vast majority of Coop purchases are usually 1st primary residence which have a standard capital gains exemption of 250k for singles and 500k for married. This completely negates your assertion that the average person will somehow "benefit" from having their tax rebate stolen from them. This tactic will only benefit professional real estate investors, developers and sponsors. And that's IF there even IS a profit after you pay your 2% flip tax (no exemptions there are there?) 6% broker fee, State & City transfer tax and all the fees imposed by the coop and their affiliates, etc. etc. etc.

But it's interesting how Coop Landlord lawyers have figured out a way to turn a tax rebate into a capitol gains deduction. THAT should be illegal and it's just this type of corporate loophole mentality that has caused the current fiscal crisis that we're experiencing at large.
Special assessments should not be random collections of funds which by definition are supposed to be imposed only for unexpected and other ONE TIME capitol improvements which exceeds the operating expenses of the building.
Period.

andwin: I'll be honest. I do think you are kind of a nut. I find that crazy people tend to arbitrarily capitalize words and you do that. What on earth is a "Coop Landlord" and why do you capitalize the words? Coops are run by boards, not landlords. Sponsors, as I pointed out before, are pretty much irrelevant in established coops and to the extent they still hold a seat in some, they typically have virtually no influence or say.

Whatever is allowed or disallowed in a condo is well and good, but there is nothing magic in condo rules that makes them some kind of gold standard by which to judge all other forms of ownership. And the things that coop revenues go toward are things that condos also must pay for. One way or another, owners pay. Facades need to be maintained, doormen paid for, elevators replaced, amenities funded. If labor costs increase and building pool needs repair and the halls need renovation, it must get paid for. In a condo the association may issue an assessment or increase fees. In a coop the board may do so. It isn't really all that different in the end. A building's bricks do know care if they are a condo or coop--they just need to be cared for and the upkeep paid for.

Flip taxes are a wonderful and fairly painless revenue source; there are a multitude of ways they can be structured. They keep maintenance fees lower than they would otherwise have to be and that enhances value for everyone and on balance they are quite a good tool. Don't like them? Don't buy a coop. No need to get all hot and bothered about changing laws. No one is being forced into cooperative living.

Your point about capital gains is not well reasoned. If you are single and sell your apartment for $300,000 profit, you can deduct $250,000 as you say from the capital gains leaving you to pay capital gains tax on $50,000. But if over the years you have paid $50,000 in special assessments, then you can reduce the $50K to zero and owe no capital gains. The benefit is quite real.

assessments get added to your cost basis ?

Assessments get deducted from capital gains owed. Yes. They are deemed capital expenses by the IRS. You CANNOT however try to figure out some amount of general maintenance fees that may have gone to pay for what would ordinariily be considered a capital expense.

Actually, marco, you probably said it better. I think I should have just written that assessments get deducted from capital gains before capital gains taxes are computed.

cool. that does make sense. kinda like how part of the underlying mortgage interest deduction gets passed on to the shareholder.

As always, kylewest not only gets it right, but does it objectively, quietly, and sanely.

Amen to that - Kylewest adds so much to this board, that SE should definitely provide a nice stipend each month to guarantee his continued participation.

Kylewest wrote:
"... I do think you are kind of a nut. I find that crazy people tend to arbitrarily capitalize words and you do that ..."

Capital letters Kyle?… really? …

I have to say I'm a bit disappointed. I don't think I've ever seen you reduced to using grammar corrections to impeach someone before.
Caps and punctuation are the only tools available for emphasis on this forum so I'll continue to use Caps and Punctuation to emphasize points in the future. I'll just have to risk it that people won't interpret that as a sign of "crazy." By the way… don't posts get grayed out around here when you start making unnecessary personal attacks on other forum members? Somehow I don't think that'll happen to you though.
But since we've moved on to armchair psychology… I usually find that people who resort to attacking others for spelling and grammar on web forums tend to be narcissists who have a megalomaniacal desire to control others. You can clearly see the distinction if you compare the reply left by NWT, which was factual and to the point, vs. your reply, which was an attempt at influencing the reader's opinion on the matter.

So, just to recap:
The OP made an observation about questionable practices regarding a recurring "Special Assessment" (Caps and Quotes for emphasis).

My opinion comes from the perspective of a lowly apartment dweller while you are clearly a beneficiary of the status quo.

"So, just to recap:
The OP made an observation about questionable practices regarding a recurring "Special Assessment" (Caps and Quotes for emphasis).

My opinion comes from the perspective of a lowly apartment dweller while you are clearly a beneficiary of the status quo."

*****

And how exactly does anyone "benefit" from a special assessment or maintenance increase?

As Kyle explained, no one is getting rich from these assessments and increases. They cover the cost of operating the buildings.

what if your coop is imposing a special assessment to cover costs for:
- Increased utilities (gas, water, sewer)
- Increased RE taxes

My building just imposed such an assessment, it is also disconcerting b/c of the fact that I live in a building where more than 50% is controlled by the original sponsor, although not officially. The sponsor still retains 30% of shares and he has a "friend" that resides in the building and is the president of the board and retains a little over 22%...

This is the truth and speaks to what andwin is trying to point out.

Additionally, after looking into our building's RE taxes over the past 6 yrs, the RE taxes have increased 7% overall and monthly carrying costs have increased 12% over the same period of time. So I cannot see how that can just arbitrarily impose this "Special Assessment" when the basis for increasing it is unwarranted???

-lowly

I cannot speak to this unless I can see the whole financial picture here. What other debt load is the building carrying? Is there an outstanding mortgage? How much of a reserve do you have?

By the way, it's quite common (if not required) for the sponsor ("Holder of Unsold Shares"), in addition to himself having a position on the board, to have another designee (who must also be a shareholder) on the board.

lowlyapt: your description of the building is a bit cryptic. How many units? And how does the president have 22% of the shares? Is this a very small building? If so, all bets are off because micro-coops are a world unto themselves in many ways. Personally, I would never get into a financial bed with 8-10 strangers in a tiny coop. Too much risk and too large an apportionment of overall building expenses--not a good economy of scale.

But the situation you describe is a little odd since RE taxes and utility costs don't really go down, so paying for them with a special assessment seems a bit unorthodox. However, if the special assessment is just for the STAR rebate, that assessment would not possibly cover the increase in RE tax and utilities that buildings in NYC have experienced in the last years, even if a board wanted to apply the STAR rebate to these added costs. Perhaps, rather than raise maintenance to cover the entire cost of the operating expense increases, the board has applied the STAR rebate to the operating budget and thus been able to increase maintenance less than they would have had to raise it without the STAR rebate.

Maintenance charges across the city have increased something like an average of 6-8% PER YEAR for the last several years, so when you say your maintenance has only increased 12% over 6 years, I'd say you are at the very lucky end of the spectrum of coop owners. I do not understand where the alleged abuse is or what you believe should instead be occurring.

Our micro-coop used a special assessment to pay for increased real estate taxes, figuring that an upcoming mortgage refinance would then lower maintenance back to where it was.

Didn't work out that way, but that was the intention. I agree it's strange, but as KW says, all bets are off. A few of the previous board members were adamantly opposed to a "permanent" maintenance increase, so they went the assessment route. Better than raiding reserves to pay for routine expenses, I suppose.

I just purchased a co-op in February 2012. It was a sponsor unit. The sponsor had been renting the apartment since the building went co-op in 80s. This month I had an assessment for $1,500 added to my maintenance statement. The building management tell me that this is an annual assessment to offset/claim back the RE tax abatement. I asked how I stand on this since I never received any rebate or refund from the City. I was told that I am not entitled to a rebate since I just moved in and, because I closed after 1/5, I will not be entitled to the rebate next year either!! Can this be right? I am wondering if the sponsor received the rebate and how I stand legally in relation to having the sponsor pass the rebate on to me since I am having to food the assessment bill.

I checked the sale contract and there is a rider that seems to address this directly. Its states:

"In the event that one party actually receives any credit, refund, or rebate from the City of New York (and which is not offset by an assessment) in connection with the reduction of real estate taxes attributed to the period of the other party's ownership of the Unit, the receiving party shall promptly apportion same and deliver the appropriate amount to the other. This paragraph shall survive the Closing for a period of one year."

Can anyone please advise on this? I would very much appreciate it.

Thanks,
Karl

My building (80 units) is adding a THIRD assessment. I understand the need for the STAR assessment and the realities of running a coop, bt when I questioned the purpose of the previous two assessments and when they would end got real push back from the board, which doesn't seem to remember the purpose of the first two assessments and only named an end date for the third, six months from now. Our building has been running a deficit for the past five or six years, and it seems the board is trying to keep from raising the maintenance through these assessments which never go away. My understanding was that I get tax breaks from the maintenance on a yearly basis, but none from assessments until I sell. Can someone please enlighten me on the standard business practice and how to handle this situation in a non-hostile manner? Thank you -June

Does anyone know the legality of a landlord trying to get the tenants to pay the special assessment,by adding the word 'assessment' to the Maintenance Increase portion of the Rider? We agreed to pay Maintenance Increases and additional assessments, thinking that the additional assessments excluded a special assessment. My landlord received tax rebates in the amount of the assessment but still wants us to pay it.