Condops, although less frequent than condos and co-ops, is another housing alternative in New York City. Started in the 1960s, condops are mixed-use condominiums that contain a unit or units owned by a cooperative corporation. In a nutshell, a condop is a co-op within a condo.
Because a co-op cannot legally earn more than 20 percent of its income from the building’s commercial tenants, owners and developers divided buildings to reap the tax benefits. If the co-op did earn an income greater than 20 percent, the co-op’s shareholders weren’t permitted the standard tax deductions.
Within a condop building, commercial spaces were categorized as one condo unit, and residential spaces were classified as a separate unit. Those residential spaces were then broken into cooperative shares, hence the co-op within a condo, or “condop.” In a condop, residential units are most often in the tower section or high-rise, and commercial spaces are located on the lower floors.
In New York, since a condo building is not permitted to sit on leased land, but instead must own the land on which it’s situated, often those buildings with a land lease have been converted to condops. The land is usually owned by a third party, and the condop pays rent to the owner of the land. In this case, you’ll find that the condop typically adopts the legal structure of a co-op, but follows the bylaws of a condo.
Land lease properties often sell for less than those not on leased land, which means you could purchase a larger apartment at a lower price. Bear in mind. However, the lot’s rent is split among the apartment owners and included in the monthly maintenance fee, making that maintenance higher than it would be in a similar building with the owned land. The portion that goes toward the maintenance is not tax deductible, either, so that’s something else to consider. The more years left on a land lease, the better. Most leases are renewed with no issue, but there is the rare occurrence when a lease is not renewed. In this case, the owner of the land would evict the condop.
Another consideration is financing an apartment in a building with a land lease. Securing a mortgage on an apartment within a land-lease building could prove more challenging than acquiring one for a unit in a building that owns its land.
You’ll find three boards in most condops. The first is a condo board, which represents the commercial spaces as well as the co-op portion of the building.
The second is strictly a commercial board and handles any issues directly related to the commercial spaces. And the third is elected by the shareholders to preside over the residential units, making decisions regarding common areas such as the laundry room, storage, hallways, etc.
It’s a myth that all condops have less stringent rules than co-ops. It’s likely that those operating as co-ops will enforce the same rules, e.g., the two-year maximum to sublet, and specifics of dog ownership. Similar to co-ops, condops operating as co-ops require board interviews.
Many condops function as condos, however, and have liberal policies, such as no board interviews and less restrictive rules regarding pets and sublet policies.
With regards to repairs, how does one classify capital improvements as the co-op’s responsibility, the condo’s responsibility, or a commercial responsibility? It’s not unheard of for the three boards to be at odds regarding certain building issues, such as refurbishing elevators. For this reason, it’s best to speak with the managing agent to find out the political stance of the building before adding a condop to your shortlist or making an offer on a unit in a condop building.
As far as price, condops should run in the same range as condos. Financing a condop apartment will likely be easier than financing a co-op. It’s not uncommon for the required percentage down to be lower (many co-ops require 25 percent or higher.) Most lenders will treat a condop like a co-op. Some lenders, however, may not be familiar with the workings of a condop and may need an explanation. As long as a condop meets Fanny Mae guidelines, there shouldn’t be issues during the underwriting process.
Today, you’ll find fewer than 300 condop buildings in New York City as compared to more than 6,700 co-ops and well over 2,000 condos. Since there are fewer NYC condops than there are co-ops and condos, often buyers will need to be educated about their specifics. These details include how a condop works, as well as the advantages and disadvantages of buying one.