What Is a Proprietary Lease for a Co-op Apartment?

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What Is a Proprietary Lease for a Coop Apartment?

We’ll demystify the following topic in this video. My name is Chris at Hauseit. Hauseit is the largest Assisted FSBO and buyer agent commission rebate company in NYC, established 2014.

A proprietary lease is a binding lease agreement between a shareholder and a cooperative corporation governing the relationship between the parties and the terms of the shareholder’s residency in the building, and more specifically their apartment within the building.

Proprietary lease definition

The proprietary lease is a signed lease agreement between a co-op apartment owner and the board of directors of a cooperative corporation which governs the relationship between the two parties and the terms of the co-op apartment owner’s residency in the building.

Keep in mind that because the coop apartment owner is a shareholder with ownership in the cooperative corporation, the entity that actually owns the building, the shareholder is not considered a statutory tenant under NYC’s rent regulation laws.

Rather, the shareholder tenant’s relationship with the cooperative corporation is governed by the proprietary lease as well as New York State business law pertaining to corporations who operate for the benefit of their shareholders.

Remember that co-op apartments are not considered to be real property since the cooperative corporation actually owns the building.

Shareholders receive a stock certificate noting how many co-op shares they own, as well as a proprietary lease which enables them to occupy the apartment they “bought,” effectively in perpetuity.

Difference between the proprietary lease vs co-op by-laws

The co-op’s bylaws dictate how the co-op is organized, managed, how elections are held, indemnifies officers and directors and grants various powers to the co-op.

The proprietary lease on the other hand is more focused on the contractual relationship between each shareholder and the cooperative corporation, and the rights and responsibilities of each party.

Both the co-op bylaws as well as the proprietary lease are considered to be important foundational documents and can usually be found in the original condo or co-op offering plan.

Important sections of the proprietary lease

A proprietary lease is important because it permits the shareholder to occupy the apartment that he or she “bought.” Without a proprietary lease, a shareholder only has shares in the cooperative corporation, which doesn’t do the buyer any good if he or she can’t actually reside in the apartment.

The proprietary lease dictates how maintenance charges are levied

The proprietary lease will clarify how and when maintenance should be paid (i.e. typically on the 1st of each month), and also confirms that shareholders are responsible for their pro rata share of any co-op special assessments.

The responsibilities of the coop corporation are spelled out

The proprietary lease will typically state that the co-op is responsible for maintaining the building in good condition, including all common areas such as sidewalks, courts, hallways, cellars, stairways, elevators etc.

It will also specify what utilities are included, such as hot and cold water and heat.

Right of inspection of the corporation’s books by shareholders

The proprietary lease gives shareholders the right to inspect the “full and correct books of account” during reasonable hours at the corporation’s main office. The co-op corporation is typically responsible for providing an annual financial report certified by an independent accountant as well.

Everyone has the same lease

The sample proprietary lease we’ve included below states that “each proprietary lease shall be in the form of this lease, unless a variation … is authorized by at least two-thirds of the lessor’s shares.”

In the event that a revised proprietary lease is approved by a majority vote, then all shareholders will get the new lease.

The coop corporation is totally indemnified

As you might imagine from what little you know about co-ops, the coop corporation is totally indemnified from “all liability, loss, damage and expense arising from injury to person or property occasioned by the failure of the lessee to comply with any provision hereof; or due wholly or in part to any act, default or omission of the lessee or of any person dwelling or visiting in the apartment, or by the Lessor, its agents, servants or contractors when acting as agent for the lessee as in this lease provided.”

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