A frequently asked question by boards and co-op apartment owners is whether a co-op corporation can be converted to a condominium. While this question has likely been asked since 1964, when New York adopted a Condominium Act¹ permitting condominium entities to be created, it is now being asked with greater urgency—as the condominium form of development and ownership has become more prevalent in New York and co-op apartment owners perceive significant benefits to be had from condominium versus co-op ownership. These perceived benefits include: enhanced apartment values (as much as 20 percent, based on empirical studies²); and greater flexibility in transfers, leasing and apartment financing (which in most condominiums, unlike in co-ops, requires no board approval).

However, the purpose of this column is not to examine the purported superiority of condominium ownership, about which we and others have written.³ Rather, this column discusses the significant deterrents to converting co-ops to condominiums, in the hope that, for these co-op buildings which desire to do so, solutions can be found to remove the economic uncertainty (and therefore risk) which generally deters even consideration of such conversions.

The Obstacles

Obstacles to conversion generally fall into two categories: those presented by the co-op's proprietary lease, governing New York corporate law and outstanding mortgages on the co-op building and owner apartments, and those presented by the uncertainty of liability for shareholders and the co-op under federal income tax laws.