Renovation projects in New York City are different from renovating anywhere else. Renovating in NYC is usually more expensive, time-consuming, and requires many more permits than anywhere else. The process is often further complicated with surprises and budget increases which can delay or even suspend the renovation. In this article, we will be breaking down all of the key components of a NYC renovation so this does not happen with your project.

What Renovations Require a Permit?

The renovations that require permits are usually any type of addition, structural changes, or significant alterations to your home. Different kinds of renovations will need different types of permits. When you are doing electrical work, sewer work, or a gas line change, you will need each respective permit.

  • An Electrical Permit is required if you are making an electrical upgrade or a new electrical installation.
  • A Plumbing Permit is required if you are doing plumbing alterations, putting in a new plumbing system or extensive repairs to your current system.
  • A Mechanical Permit is required if you are installing a new HVAC system or altering the current one.
  • Fire Department Approval is needed if you are renovating a fire alarm system, fire suppression system, or are doing significant fire safety work.
  • DEP (Department of Environmental Protection) approval is needed if you are impacting water and sewer systems (for example: bathroom installations or substantial changes to home plumbing).
  • LPC (Landmark Preservation Commission) approval is needed if your home is in a historic district or has landmark status, you will need LPC approval for any external changes (including façade alterations and exterior painting).
  • A Special Natural Area District Permit is needed if your property is in one of NYC’s natural area districts, such as certain sections of Staten Island (Emerson Hill, Dongan Hills, Todt Hill, Lighthouse Hill, the Central Wetlands Area and Shore Acres Area), certain sections of the Bronx (Riverdale, Spuyten Duyvil and Fieldston) and the Fort Totten section of Queens.
  • A Gas Line permit is needed if you are changing your gas lines, doing work to a gas fireplace, or modifying gas appliances.
  • A DOT Curb Cut permit will be needed if you are creating a new driveway or altering an existing curb cut on your property.
  • A Sidewalk Café permit is necessary if you are planning to create a sidewalk café.
  • Roof Work Permits will be necessary if you are creating a new deck, green roof, or installing solar panels.
  • Constructing an atrium within your property may require Atrium Permits.

Planning for Renovation Costs

Before signing any contracts with contractors, homeowners should know a few things about the renovation process. First, going with the cheapest option does not always mean you will pay the least amount. Inexperienced contractors that are trying to undercut competition will oftentimes hit delays and order changes that lead to unexpected price increases. Experienced contractors are generally able to account for a lot more when budgeting, leading to more accurate cost estimates. More extensive renovations (such as gut renovations) may require multiple professionals such as a general contractor, subcontractors, architects, and even interior designers.

Second, it is important to keep in mind your renovation goal. If you are renovating a home or apartment to get more when you sell it, customizing it more will increase your cost with little to no resale value for these extra improvements. If you are renovating your home to live in and enjoy for the foreseeable future, the extra cost of customization may be worth it to you.

As of the time of this writing, it will ultimately cost you between $25,000 to $40,000 for a mid-range kitchen renovation and can go up to as much as $90,000 depending on the size and finish levels. To finish a kitchen with subway tiles can cost about $25 per square foot and over $100 a square foot for marble or quartz.

The cost to renovate a typical 5 x 7 NYC bathroom can start at $25,000 and be as much as $50,000 if you choose to replace a bathtub or shower. The cost of fixtures like toilets and sinks alone can start at around $500 and be as much as a few thousand dollars. Bathrooms are expensive because of the intricate tile, plumbing, and electrical work that needs to be done. Doing multiple bathroom renovations at once is a great way to save some money as the costs will be spread out across the multiple bathrooms.

If you want to combine two apartments into one unit, the cost of permits plus the door in between the units will cost you about $10,000. If you want to combine two apartments vertically, this will require you to get a structural engineer and you will have to file for special inspections. This will cost about $60,000 once you take into account the staircase you will now have to build. Some homeowners like to pay to have the electrical panels combined, that way they do not have the inconvenience of paying two separate bills every month.

Homeowners always want to budget between 10% to 20% extra for anything unexpected. For example, the plumbing and electrical system may be older than expected causing your contractor to have to uproot and start the systems over from scratch. It is always a good idea to have an architect or engineer review your budget and tell you if you are missing anything.

An often-overlooked expense is the cost of living somewhere else during the renovation. Some owners would rather stay in place to save some money, but this can oftentimes be just as expensive, if not more. Many times it will be cheaper to find a rental in the neighborhood as the increased costs of staying put – like the extra labor costs and time of having to renovate with people there – will cost more than a budget-friendly apartment. Of course, this is all a balancing game, and it is always best for the homeowner to do due diligence before making the best decision for themselves. If you plan to stay, make sure to tell your contractor so they can tell you how much extra it will cost for them to take all the necessary precautions to keep you and your family safe during the renovation.

Conceptualizing Your Renovation Timeline

The project timeline for renovating your home varies from project to project and is a mixture of many different factors. Before renovating, you should always speak to a permit expeditor to see how much it would cost for them to help you throughout the process. The timeline for DOB approval can take anywhere from a few weeks to a few months just to get the approval process. Homeowners can help expedite the process by giving timely responses to requests for information.

Keep in mind that because NYC condominiums and cooperatives are managed buildings, approvals from building management and the respective cooperative or condominium board are mandatory for many renovation requests. Even small changes like adding or removing walls, or floor replacement may require approval from the board or conformity with the building rules. What requires approval will vary from property to property and boards may take some time to respond to any requests for information. Many buildings also have Summer Work only rules because many residents do not live in NYC during the summer so they will only allow for renovations during this time.

Before going to a condominium or cooperative board for approval, homeowners should be aware that boards may penalize you for going over a certain specified time limit. This can be as low as 90 or 120 days after which there is a penalty that incurs monthly, weekly, or daily. This incentive to keep the renovation short usually means expensive penalties for the homeowner.

The Role of a Real Estate Attorney in the Renovation Process

A real estate attorney is crucial to assist in obtaining the necessary permits and approvals from city agencies like the Department of Buildings (DOB). Without their expertise on zoning laws and landmark regulations, the process can get expensive fast. Just like with contractors, taking the cheaper route can often lead to a more expensive outcome. Experienced attorneys are able to plan ahead and inform their clients about how to make the most cost-effective decision while avoiding any major pitfalls that a client might be unaware of. Legal fees start to add up when attorneys have to jump into a case midway through to solve a huge problem when they could have just advised the client properly from the beginning.

On April 20, 2024, the New York State Legislature passed the Good Cause Eviction Law, amending Article-6A in New York’s Real Property Law to add the newly named “Good Cause Eviction Law.” This amendment protects tenants from unreasonable rent hikes and retaliatory or discriminatory evictions. Tenants across New York now have additional protections against unreasonable landlords. The Good Cause Eviction Law gives tenants the power to negotiate with their landlords when they believe there is no rational basis for their eviction or for not being given the option to renew.

What Is The Good Cause Eviction Law?

The Good Cause Eviction Law is an overhaul of the relationship between NYC renters and their landlords. The intent of the law is to provide greater stability for tenants in the residential real estate market. First, it gives market-rate renters a legal way to challenge an “unreasonable” rent increase; second, it requires a landlord to let a tenant renew their lease unless the landlord has “good cause” to say otherwise; and third, a landlord cannot evict a tenant unless they have a “good cause” for doing so.

An “unreasonable” rent increase is defined as the lower of (a) 10% above the tenant’s current rent, or (b) 5% plus the consumer price index (CPI). For example, at the time the law was passed in April, the CPI was at 3.82 percent, so any rent increase above 8.82% would be considered unreasonable.

Previously, landlords could choose to not renew a lease for any reason or for no reason at all. Now, the law requires that a landlord must have “good cause” to do so. “Good cause” is defined as the failure of the tenant to pay rent (assuming the rent hike is not unreasonable), a violation of the lease by the tenant, if the tenant breaks the law, if a tenant creates a nuisance, if there is substantial damage to the building, or if the landlord wants to demolish the building or if the landlord wants to live in the unit.

How The Good Cause Eviction Law Works

In practice, the Good Cause Eviction Law requires landlords to take additional steps in order to be in compliance with the law. To remove a tenant, which includes the non-renewal of a lease, landlords need to obtain a court order after a showing of good cause. Tenants cannot waive their right to be protected under the Good Cause Eviction Law. Any contract to do so will be considered void as a matter of public policy.

The courts will be the final deciders of an “unreasonable” rent increase. Tenants must show that rent was raised in violation of the law, then the landlord can show whether they had the right to do so. The law instructs the court to consider a number of factors to see if the landlord’s increase was justified. The courts are instructed to review the costs of fuel, utilities, insurance, maintenance, property tax, and if there were any significant repairs done that could justify such an increase. If the rent increase is determined to be unreasonable, a tenant’s failure to pay the increase does not constitute good cause for removal.

Who Is Covered Under The Good Cause Eviction Law?

Tenants who live in a property owned by a landlord with more than 10 units in the state of New York are covered by the Good Cause Eviction Law, if the building’s certificate of occupancy (“CO”) was issued before January 1, 2009. The Good Cause Eviction Law applies to all NYC residents as of August 18, 2024, and other towns can opt to choose-in to the law at any time.

Exemptions Available

Although it may seem that there are many people protected by the Good Cause Eviction Law, the law comes with some exceptions:

  • Tenants in rental units of condominium or cooperative buildings
  • Rent stabilized apartments (under local, state, or federal law)
  • Units built after 2009
  • Tenants that pay more than 245% of the fair market rent
  • Small landlords (owns no more than 10 units in the state)
  • Tenants that live in an owner-occupied building containing 10 units or less
  • Any building subject to an offering plan submitted to the Attorney General
  • Buildings with COs that are issued after 1/1/2009 for a period of 30 years following the issuance of the certification are exempt for 30 years.
  • Anyone currently in housing court disputes
  • Occupancies that are incident to employment, seasonable units, units within hospitals, manufactured homes, hotels, dorms, or units within religious facilities.

What The Good Cause Eviction Law Means for Landlords in New York City

Good Cause requires landlords to notify tenants regardless of whether the unit is subject to the law or exempted from it. All initial leases, lease renewals, and any other notice and petitions for all apartments in NYC must include a Good Cause Eviction Law Notice. The required form is provided in section 231-c of the law. If the unit is exempted, the landlord must identify the applicable exemption and give it to the tenant.

Landlords must send to all tenants with any pending notice of renewal or initial leases that have not yet been executed or have not yet commenced the 231-c form to fulfill the notice requirement.

Like any new law affecting real property, it is best to consult with an experienced real estate attorney to protect your rights.

 

In New York City, residential buyers can often get confused as to what types of properties are out there. Whether they are looking to buy a condominium unit or a townhouse, it can be hard for a purchaser to come to a decision. People tend to think that condominium units are always high-rise apartments part of larger buildings and townhouses are homes horizontally connected to each other. Although this is generally true, it is not always the case. In order for buyers to make a well-reasoned decision, let us go through the key differences between the two types of ownership that most often get confused in the NYC real estate market.

Ownership

A key difference between a condominium unit and a townhouse is the different types of ownership that each entails. Owning a condominium unit means you are owning an individual unit within a building or a community of buildings. You are responsible for the internal maintenance of your unit. Normally, you are not responsible for any other portion of the building shared by anyone else. Shared walls are owned by the condominium plan or a neighboring building (if it is the exterior part of the wall), however, if it is part of the interior of the wall, it is owned by the unit owner.

With a townhouse, the owner owns the interior walls, the exterior walls, and the land under their individual unit. Generally, townhouse ownership includes any front yards and backyards associated with the townhouse. Any shared space is generally owned by the homeowners’ association (HOA).

Owner Responsibilities

A major distinction between condominium units and townhouses is the responsibilities the owner has towards the condominium building or the HOA. With a condominium, the owner is generally responsible for everything within the unit; everything else (i.e., exterior walls, roofs, common areas) is the responsibility of the condominium building through its board.

With a townhouse, however, owners are again responsible for anything that they own. That means they are responsible for the interior, exterior, and any land the townhouse is on. While an owner’s responsibilities are based on what they own, you should always look to the HOA’s plan to know exactly what does and does not fall under the responsibilities of an owner.

Costs

As part of making an informed decision, purchasers should know the different costs associated with each type of ownership. When trying to decide which is better, a homeowner should first look at the purchase price of both. The purchase price will generally be based on square footage and location. With a condominium unit, you are likely to acquire less space, however, the location tends to be better than it would be in a townhouse. A sacrifice of the smaller space in a condominium unit may result in the ability to be closer to the center of town.

After looking at the purchase price, purchasers should review the fees and homeowner’s insurance under a condominium and an HOA. It is important to remember that maintenance costs on a condominium unit may be higher than a townhouse because in a condominium unit, the condominium through its board is responsible for the upkeep of the building. On the bright side, a condominium unit’s homeowner insurance will probably be cheaper as the owner only needs to insure the interior of his or her unit, not the exterior.

A condominium unit can be a great option if you are looking to avoid some of the bigger financial burdens such as a casualty loss due to a tree falling on your home. Normally, the condominium board will cover anything that happens to the exterior of your unit.

As for the townhouse’s costs, the HOA fees should be lower. However, they may have higher maintenance costs and higher homeowner insurance.

Financing

The financing process is typically more complex for condominium units than it is for other homes. Not only do you have to qualify for a loan, but a lender will want to examine the financials of the condominium as well. This is why being in a reputable and fiscally responsible building will make it easier for condominium unit owners to receive a loan.

Some of the factors examined may include whether the condominium is involved in any ongoing litigation or if more than half the units are owned as real estate investments or the sponsor instead of by owners as their primary residence. Lenders prefer the owners to have the condominium unit as their primary residence because it leads to financial stability, and reduces the risk of default.

Amenities

A major upside of owning a condominium unit is the amazing amenities that are generally given to the unit owners. One of the reasons owners are given smaller units is to sacrifice space for the amenities in common areas. Condominiums are well known for boasting about their swimming pools, gyms, and even roof decks in densely populated urban areas.

Townhouses on the other hand offer more limited amenities. It is a sacrifice for a bigger living space. This usually means lower maintenance costs because owners do not need to pay for over-the-top recreational areas.

Rules and Regulations

Both condominium units and townhouses can have their fair share of restrictions. Condominiums are generally stricter. There may be restrictions on pets, loud noises, smoking, etc.

Townhouses generally require you to keep a certain aesthetic to the exterior design in order to have uniformity with the other buildings in the HOA. The HOA restrictions may also include limits on pets, noise, garbage disposals, and renovations. When buying a townhouse, you will probably enter into a restrictive covenant with the HOA, thereby binding you to their rules, declarations, bylaws, and amendments.

Sometimes, the restrictions of condominiums and the HOAs may seem overbearing, but the intent is to preserve the best interests of all the owners.

For both condominium units and townhouses, it is important to check the covenants, conditions, and restrictions affecting your ownership to know your obligations. It is always important to consult an experienced real estate attorney to ensure that your rights are protected.

Is a Townhouse or Condo Right for you? Consult a NYC Real Estate Attorney

Cooperative housing (“co-op”) is one of the most common forms of ownership in major US cities. In New York City there are about twice as many co-ops as there are condominiums. The main difference between co-ops and condominiums is their ownership structure. With a co-op, you are buying shares in the corporation which then gives you a proprietary lease for your unit. However, with a condominium, you own your unit in the more traditional sense.

Can Co-Op Owners be Evicted?

In 40 W. 67th Street v. Pullman, the Court of Appeals of New York ruled that co-op boards can evict shareholders for “objectionable” behavior. In its 2003 decision, the Court of Appeals held that co-ops do not even need to establish that the shareholder’s actions were objectional. The court held that the co-op’s business decision will be upheld, unless, the shareholder can show wrongful conduct. Specifically, the shareholder must show the board acted “(1) outside of its authority; (2) in a way that did not legitimately further the corporation’s purposes; or (3) in bad faith.” This gives the co-op board the power to be both the judge and the jury of its decision-making process.

Separately from the ruling in Pullman, there are also cases where evictions can result from monetary default. If outstanding charges start to accrue, the co-op can put a lien on the unit for the charges and then foreclose on that lien.

The Eviction Process in New York

The eviction process varies from state to state. In New York, ownership rights of a co-op make the eviction process simple. Since the co-op association owns the unit, the first step is for shareholders to be given time to fix the problem. The second step is for the board to meet to discuss the termination. At these meetings, co-op shareholders should ensure that they are given the right to speak, are allowed to have legal representation present, and are given enough time to prepare for the meetings. The third step is for the board to then decide if they will be evicting the shareholder. This usually requires ¾ of the board’s directors to agree. Fourth, the board must serve the shareholder with a dated notice of termination. Fifth, the board must file an eviction action (which will proceed similarly to a normal litigation process). Finally, once this eviction action is filed, the shareholder is given fourteen days to stay and then the sheriff has the right to execute on the eviction. The shareholder’s shares can then be sold to the co-op, taken away, or leased away, thereby extinguishing a lender’s security interest.

According to Pullman, co-ops must follow the business judgement rule. The reasoning behind this is because a co-op is a corporation, just like other businesses, they need to ensure that they are able to do their job. The Court of Appeals of New York held that by their very nature, co-ops are protected by the business judgement rule, thereby making the eviction process especially important. The more the co-op can show that they are evicting because of non-biased reasons, the more likely the eviction is going to be valid.

Other states such as New Jersey and Illinois may require demand letters or to first try to resolve the dispute through ADR (Alternative Dispute Resolution), so it is important that shareholders get assistance from legal professionals if they are being evicted.

As stated above, the co-op must not be evicting for biased or personal reasons. Co-op shareholders should ensure that they are given enough time to prepare for meetings related to the evictions, given the right to speak, and are allowed to have legal representation present.

Co-Op Owner Rights

The rules of every co-op are derived from three places. First, the proprietary lease (which includes the rules and regulations) that is provided to all potential purchasers. Second, the by-laws of the building. Third, state, local, and federal laws. The state, local, and federal laws have the final say on all co-op matters.

As a co-op owner, it is important to know and understand your rights and obligations. To know your rights and obligations, be sure to check the co-op’s rules or bylaws to make sure the proper requirements are followed. The rules and regulations apply to everyone; if you feel that a certain law is only being applied to you or you are being penalized for something that is not part of the rules and regulations, you may have a cause of action. Further, the board must obey the principles of “natural justice” i.e., the board did not disclose the complaints against you, or the eviction is not based on facts.

The Rights of the Co-Op Board

The rights of the co-op board also come from the proprietary lease, the by-laws, and the state, local, and federal laws. As outlined by Pullman, the board is given significant discretion once the proper requirements are met, as long as they are not acting in bad faith.

Appealing an Eviction

Whether or not someone can be evicted from a co-op depends on the co-op’s bylaws and their rules and regulations.

If you do not understand a co-op’s bylaws or believe that your rights are being violated, make sure to contact a trusted co-op attorney.

Work with NYC Real Estate Attorney

While New York law does not strictly require purchasers to engage the services of an attorney to conduct residential real estate transactions, it is strongly advised to retain one. Navigating the purchase or sale of a co-op unit in NYC poses special challenges, making the guidance of an attorney with expertise in co-op transactions particularly critical. Cooperative apartment transactions require prospective purchasers to conduct more in-depth due diligence and sellers and owners to understand the cooperative corporation rules regarding the alteration, transfer, or sale of their units. An experienced New York City coop attorney will guide purchases by thoroughly reviewing the coop offering plan and amendments, the building’s house rules, corporation financial statements, alteration agreements, and recent board meeting minutes. The attorney will also advise the buyer of factors outlined in the coop documents that will affect any future sale of the unit, including whether the building’s finances properly managed, does the building has sufficient financial reserves, what are the terms of the underlying mortgage, the policy toward pets, and the ability to make changes to the unit.

 

There are more than one million units of cooperative housing (“co-op”)in the United States, mostly common in major cities. The first co-op was established on West 18th Street in New York City in 1876. Estimates suggest that in New York City there are twice as many co-ops as condominiums. The discrepancy can largely be attributed to the so-called “Co-op Boom” of the 1980s, with many existing rental apartment buildings converting into co-ops.

Co-op housing provides an alternative to the traditional methods of acquiring a condominium or an ordinary single-family home. When you buy into a co-op, you invest in shares of a corporation rather than holding title to the property directly. Co-ops can be apartment buildings, duplexes, townhomes, and other traditional residential structures – but they operate under different rules. Co-ops offer some advantages over condominiums, but they also have their drawbacks. Here is everything you should know and consider about how co-ops work and how they compare to other housing options.

How Do Co-Ops Work?

When you buy a single-family home, condominium, or other type of residential property, you are purchasing a piece of property or unit in the building and granted a deed allocated to a particular section, block, and lot number. Co-ops work differently. When you are purchasing a co-op unit, you are purchasing a fixed number of shares in a corporation (based in part on the relative size and the value of the unit) that owns the entire building where the unit is located. Since you are purchasing shares, considered personal property, you won’t get a deed or title to the real property itself; instead, you will get a stock certificate. As a shareholder, you are entitled to an exclusive right to occupy the apartment and to use the common areas of the building. This right is embodied in a long-term lease, called a proprietary lease. The co-op corporation, which owns the entire building, serves as the landlord (the “proprietary lessor”), while the shareholder serves as the tenant (the “proprietary lessees”).

The proprietary lease establishes many of the rights and duties held by the co-op and the shareholders. The most important of these is the shareholder’s duty to pay to the co-op “maintenance fees”. This charge covers the shareholder’s pro-rata share of the co-op’s expenses, including property taxes, utility bills, amenities, the building’s underlining mortgage and interest, capital improvements, and reserve funds. Other provisions in the proprietary lease deal with the right to sublet, the right to make alterations, the co-op’s house rules, the duty to make repairs, and the shareholders’ rights if they default on the lease.

The management of the co-op is performed by a board of directors, elected by the shareholders in accordance with the governing bylaws. The Co-op board runs the building in accordance with the articles of incorporation, the by-laws, the proprietary lease, and the co-op’s rules and regulations.

The Co-op Application Process

Purchasing a co-op involves a demanding application process, including an in-person interview with the members of the board. The prospective purchaser will have to submit a board package, normally prepared by the real estate agent, if any. Although the board purchase applications vary by building. All co-ops use the application as a means of reviewing the finances of the applicant to ensure that not only can they afford to buy the apartment initially but also afford to pay for the ongoing maintenance fees during the period of the ownership. Most board applications will require buyers to fill out a financial statement and may ask to submit character references.

Co-op boards can reject a prospective purchaser for any reason or for no reason at all, and they do not even have to tell the reasoning for denying the application. However, boards must comply with the Federal Fair Housing Act, which precludes discrimination based on “race, color, creed, age, national origin, alienage or citizenship status, gender, sexual orientation, disability, marital status, partnership status,” and more.

Co-op Financing

Co-op financing differs from financing for a traditional home mortgage because co-op shareholders do not own real estate, instead, the buyer is purchasing shares of stock in the corporation that owns the building. To finance with a co-op loan, a lender will review the co-op’s financials, the co-op’s operation, its board of directors, and the property’s underlying mortgage in addition to the borrower. A co-op loan is not as easy to come by as other types of mortgages, the financing options are more limited but there are lenders that specialize in them.

What’s Different About Buying a Co-op?

There are a few key differences a prospective purchaser should be aware of prior making the decision to buy into a co-op.

Costs

Compared to condominium units, co-op units tend to trade lower in sales price and closing costs due to the arduous approval process and stringent policies. However, a co-op will typically have higher monthly costs for maintenance and other recurring expenses. From a seller’s perspective, the demanding application process not only limits the buying pool but also the value of a co-op unit does not always appreciate at the same rate as condominiums. Since the board of directors can deny prospective buyers for any reason, the seller will then have to relist the unit on the market, which will result in higher closing costs.

Tax Benefits

One of the attractive features of co-op ownership is the tax advantages. Payments of taxes for the building are shared by the entire co-op. As a shareholder you do not receive an individual tax bill, rather your portion of the tax is integrated into the maintenance fees that you pay on a monthly basis. Also, if you itemize your tax deduction, you can deduct interest on the loan for your shares of the property and you can also deduct your property taxes up to a certain amount. Some maintenance fees may be tax deductible, too. Lastly, since a co-op loan is not on real property, there is no mortgage tax imposed by New York State and New York City.

Board Approval Restrictions

As an owner of a condo or a single-family home, you can sell your property to practically anyone, however, in cooperative housing, the bylaws require that any potential shareholder be approved by the board of directors. This process can impose more challenges to resell your shares in a co-op and divest the real estate holdings. The board approval process does not only apply to prospective purchasers, but also to current shareholders who wish to make renovations in the unit. If you are planning on renovating your new apartment, check the bylaws before buying. Sublease is another policy that will require board approval. Some co-ops restrict subletting by placing time limits or other criteria to preserve the low turnover of occupants in order to minimize the disruption of the building’s peace and quiet.

Primary Residency

Co-ops are usually exclusive communities of shareholders, and the board of directors tend to approve applicants who are planning to be residents over prospective purchasers who are willing to buy a co-op as an investment property and sublease it.

How an NYC Real Estate Attorney Can Help

While New York law does not strictly require purchasers to engage the services of an attorney to conduct residential real estate transactions, it is strongly advised to retain one. Navigating the purchase or sale of a co-op unit in NYC poses special challenges, making the guidance of an attorney with expertise in co-op transactions particularly critical. Cooperative apartment transactions require prospective purchasers to conduct more in-depth due diligence and sellers and owners to understand the cooperative corporation rules regarding the alteration, transfer, or sale of their units. An experienced New York City coop attorney will guide purchases by thoroughly reviewing the coop offering plan and amendments, the building’s house rules, corporation financial statements, alteration agreements, and recent board meeting minutes. The attorney will also advise the buyer of factors outlined in the coop documents that will affect any future sale of the unit, including whether the building’s finances properly managed, does the building has sufficient financial reserves, what are the terms of the underlying mortgage, the policy toward pets, and the ability to make changes to the unit.

Consult the Real Estate Team at Holm & O’Hara

Co-ops are tightly-knit communities that often have complex management procedures in place. The guidance of a seasoned attorney is invaluable. Holm & O’Hara LLP’s real estate team brings decades of experience to the table and is proud to guide you through every step of the residential transaction process.

When you purchase a co-op, you invest in shares of a cooperative housing rather than own title to the property, which would be the case with traditional homeownership. In areas where the cost of living is high, such as NYC, co-ops are generally considered the more affordable option since the co-op’s operation method is on an at-cost basis, collecting money from residents to pay outstanding bills. However, their governing boards and bylaws typically place many restrictions on co-op shareholders’ rights in addition to higher monthly expenses and charges. The decision to buy a co-op depends on your individual circumstances and you will need to take into consideration all those factors about the ownership structure before investing.

 

Real estate investors are constantly on the lookout for ways to optimize their investments and maximize returns. One powerful tool in their arsenal is the 1031 like-kind exchange, a provision in the U.S. tax code that offers significant advantages to those who understand and utilize it. In this blog, we’ll explore the basics of 1031 exchanges and why they are such a valuable strategy for real estate investors.

What is a 1031 Like-Kind Exchange?

A 1031-like-kind exchange, also known as a Section 1031 exchange or a tax-deferred exchange, is a legal and tax-efficient way for real estate investors to sell relinquished real property and reinvest the proceeds into replacement real property of equal or greater value. The key benefit of this exchange is that it allows investors to defer paying capital gains taxes on the sale of the initial property, thus preserving more of their investment capital for the replacement property.

Understanding Key Terms Regarding 1031 Like-Kind Exchanges

To better grasp 1031 exchanges it is important to understand key terms.

  • Capital Gains: Capital gains refer to the profits earned from the sale of an asset, such as real estate, stocks, or mutual funds, that have appreciated in value over time. When an asset is sold for more than its original purchase price, the difference between the sale price and the original cost basis is considered a capital gain.
  • Tax Deferred: Tax deferral refers to the postponement of taxation on income or gains until a later date. Instead of paying taxes on income or gains in the current tax year, taxpayers can defer the tax liability to a future period, typically through specific legal provisions or investment strategies like a 1031 exchange. Through a 1031 exchange, capital gains taxes on the relinquished property are deferred, allowing the investor to reinvest the full proceeds into a replacement property.
  • Real Property: 1031 exchanges primarily apply to real property, including land, buildings, and other fixed assets used for investment or business purposes.
    Held for Investment Purposes: Property held for investment purposes refers to the intention of owning an asset primarily for the purpose of generating income or appreciation over time, rather than for personal use or immediate resale. In the context of real estate and tax-deferred exchanges like a 1031 exchange, the concept of “held for investment purposes” is significant.
  • Exchange Process: The exchange process involves several steps, including selling the relinquished property, identifying potential replacement properties, executing the exchange agreement, and closing on the replacement property within specific timeframes.
  • Relinquished Property: This refers to the property that the investor currently owns and intends to sell as part of the exchange.
  • Replacement Property: Once the relinquished property is sold, the investor has a limited timeframe to acquire the like-kind replacement property, which must be of equal or greater value to defer all capital gains taxes.
  • Like-Kind Properties: Replacement properties must be of like-kind, meaning they are of the same nature, character, or class as the relinquished property, though they do not have to be identical.
  • 45 Day & 180 Day Time Periods: To qualify for tax deferral, investors must adhere to strict timelines, including a 45-day potential replacement property identification period and a 180-day exchange period from the sale of the relinquished property.
  • Qualified Intermediary (QI): The QI is a neutral third party responsible for facilitating the exchange, holding funds, and ensuring compliance with IRS regulations.

What is the 1031 Like-Kind Exchange Process?

The 1031 exchange process involves several key steps:

  1. Sale of Relinquished Property: The process begins with the sale of the relinquished property, which is the property the investor intends to exchange. The sale proceeds are held by a qualified intermediary to facilitate the exchange.
  2. Identification of Replacement Property: Within 45 days of the sale, the investor must identify potential replacement properties that meet the criteria for a like-kind exchange. This identification must be made in writing and submitted to the qualified intermediary.
  3. Acquisition of Replacement Property: Within 180 days of the sale, the investor must acquire one or more replacement properties identified during the 45-day period. The purchase must be completed, and the title transferred to the investor before the 180-day deadline.
  4. Completion of Exchange: Once the replacement property is acquired, the exchange process is completed, and the transaction is reported to the IRS. The investor defers paying capital gains taxes on the sale of the relinquished property until a future date when the replacement property is sold.

Throughout the 1031 exchange process, it’s essential to work with qualified professionals, such as your trusted New York City real estate attorneys at Holm & O’Hara LLP to ensure compliance with IRS regulations and maximize the benefits of tax-deferred exchanges.

What is Qualified as Like-Kind Property?

In a 1031 like-kind exchange, the term “like-kind” refers to the nature or character of the property rather than its grade or quality. Essentially, any real property held for investment or business purposes can be exchanged for another property of a like-kind without triggering immediate tax consequences. Here’s a breakdown of what qualifies as like-kind property in a 1031 exchange:

  • Real Estate: The most common type of property involved in 1031 exchanges is real estate. This can include various types of properties such as:
    • Residential rental properties
    • Commercial buildings and office spaces
    • Retail properties (e.g., shopping centers, strip malls)
    • Industrial properties (e.g., warehouses, manufacturing facilities)
    • Vacant land
    • Agricultural land
  • Business Properties: Beyond traditional real estate, certain types of business properties may also qualify for like-kind exchanges under specific circumstances. Examples include:
    • Oil and gas interests
    • Leasehold interests with at least 30 years remaining on the lease
    • Certain types of intellectual property rights, such as patents or copyrights (though these are subject to strict requirements)
  • Geographical Considerations: Properties involved in a like-kind exchange do not have to be located in the same geographic area or market. Investors have the flexibility to exchange properties located anywhere within the United States, allowing for diversification and strategic portfolio management.
  • Property Use: To qualify for a 1031 exchange, both the relinquished property and the replacement property must be held for investment or business purposes. Properties used for personal purposes, such as primary residences or vacation homes, do not meet the criteria for like-kind exchanges.

The Rules and Timelines For 1031 Like-Kind Exchanges

To benefit from a 1031 exchange, investors must adhere to some crucial rules and timelines:

Like-Kind Property

The replacement property must be of like-kind to the property being sold, which is typically interpreted quite broadly in real estate.

45-Day Identification Period

After the sale of the relinquished property, the investor has 45 calendar days to identify potential replacement properties. This identification must be done in writing, typically submitted to a qualified intermediary who facilitates the exchange.

It’s crucial to adhere to this strict timeline to ensure the exchange remains valid for tax deferral purposes. Here’s what investors need to know:

  • Timeframe: Upon selling the relinquished property, investors have 45 days to identify one or more replacement properties that they intend to acquire in the exchange.
  • Start Date: The 45-day identification period begins on the day the relinquished property is transferred, known as the “relinquished property transfer date.”
  • End Date: The identification period ends at midnight on the 45th day after the relinquished property transfer date.
  • Identification Methods: Identifications must be made in writing and submitted to a qualified intermediary. Investors can identify up to three replacement properties without regard to their fair market value or any number of properties as long as their combined fair market value does not exceed 200% of the fair market value of the relinquished property.

180-Day Exchange Period

Following the sale of the original property, the investor must complete the exchange by acquiring one or more replacement properties within 180 calendar days. This period includes the initial 45-day identification period. Again, this timeframe is critical for maintaining tax-deferred status.

Qualified Intermediary

To ensure the exchange is legitimate and the tax benefits are preserved, investors must use a qualified intermediary to facilitate the exchange.

Both the 45 day identification period and 180-day exchange period rules are designed to ensure that investors actively pursue replacement properties promptly after selling their original property, preventing them from using the 1031 exchange process merely to defer taxes indefinitely. Failure to meet these deadlines can result in the recognition of capital gains and associated taxes.

Are You Interested In Learning More About 1031 Like-Kind Exchanges?

1031 like-kind exchanges offer an incredible opportunity for real estate investors to defer capital gains taxes, diversify their portfolio, and accelerate wealth accumulation. However, these exchanges can be complex, and it’s essential to work with experienced professionals to navigate the intricate rules and requirements.

While 1031 exchanges can be a lucrative strategy, it’s important to note that tax laws and regulations can change. Therefore, consulting with a tax advisor or legal professional at Holm & O’Hara is crucial to ensure compliance with the most current tax codes and regulations. If executed correctly, a 1031 exchange can be a powerful tool in a real estate investor’s toolbox, enabling them to achieve long-term financial success.

History does not always repeat itself, but, at times, you can actually hear history stutter.

In the 1960s, New York City and New York State policymakers had the best of intentions to make a “Great Society.” One of the byproducts of these efforts was the Rent Stabilization Law of 1969 (RS Law). Similar intentions and policies in the early 2010s led to the Housing Stability and Tenant Protection Act of 2019 (HSTPA). Sadly, the best intentions do not always result in the best outcomes for society. The RS Law had unforeseen negative consequences, by creating a disincentive for property owners to care for their properties which in turn contributed to the rise of slum landlords and urban blight of the 1970s. Unfortunately, the HSTPA is no different in its potential for leading to unintended, and disastrous, consequences.

Mayors like Robert F. Wagner and John V. Lindsay, supported by New York State’s policies, believed that New York’s diverse population needed better benefits and more opportunities. City University did not charge any tuition. The number of hospitals, fire departments, and police departments reached their all-time peak. The preservation of unions was critical to help the working man. Urban renewal programs created public housing. The city added 19 pools to the public housing system during the 1960s and 1970s as well as increases to park areas. The idea was simple: to help residents achieve a better and healthier life, and to address some of the economic stress of living in the City. Rent stabilization was an attainable and noble goal in the 1960s.

The History of NYC’s Rent Stabilization Law of 1969

Rent laws are not new. New York has had some form of rent laws since the 1920s. Back then, courts were the arbiters of “reasonable” rent. In 1943, the Office of Price Administration, under President Franklin D. Roosevelt, froze rents in New York. All buildings built prior to February 1, 1947, were subject to rent control under federal law. Taking the lead set up by the federal government, New York State established the Temporary State Housing Rent Commission in 1950 with the goal of creating a rent control plan for New York. The Commission allowed for deregulation of apartments upon reaching certain benchmarks. Unfortunately, by 1969, inflation was high, new construction was dwindling, and vacant apartments were disappearing. All of these factors resulted in higher rents, prompting New York to pass the RS Law of 1969. It, as modified, established that all buildings, consisting of six or more dwelling units, built after 1947 and prior to January 1, 1974, were subject to rent stabilization. It also created the Rent Guidelines Board (RGB) to determine allowable rent increases. Lastly, it had a mechanism to continually assess the need for rent stabilization laws.

New York landlords were ill-prepared for this rigorous legislation, as was the City at large. By the 1970s, New York City was in a severe recession. The City faced union strikes, massive budget cuts, increasing crime, and near bankruptcy by 1975 under Mayor Abraham Beame. Landlords saw fuel increases of 403 percent. Landlords unable to meet their obligations often resorted to abandoning their properties. Some even committed arson with the intention of recovering insurance proceeds. The Bronx lost more than 97 percent of its buildings to abandonment and fires. New York City quickly became the second largest owner of multifamily housing (the first being the New York City Housing Authority) due to tax foreclosures including over 60,000 vacant buildings and 40,000 partially vacant buildings. The lost tax revenue from these properties would severely cut into the budgets of both New York City and New York State. New York responded by instituting major reforms:

  • Municipal wage freezes were put into effect
  • Municipal workers were laid off, hospitals were shuttered
  • Subway fares were increased
  • The City University of New York ended its free tuition.

The idealism of the 1960s came crashing down. After this fiscal crisis, new leaders regarded themselves more as municipal money managers than leaders of the Great Society.

New York State’s Rent Regulation Reform Act

In 1993, New York State enacted the Rent Regulation Reform Act which allowed for decontrolling rent stabilized units with rents over $2,000 per month. It also allowed for landlords to charge one fortieth of the costs of improvements to an apartment to a tenant’s rent. In 1997, New York State also allowed a vacancy credit of 20 percent when a tenant left an apartment. These policies addressed many of the problems brought about by the RS Law and incentivized landlords to own and improve their properties. The increased revenues sparked both increases in tax bases, and more real estate transfer taxes and mortgage taxes as these properties were traded or refinanced.

Fast forward to the 2010s, and New York City has experienced a huge real estate boom. Crime is at its lowest rate in decades. Times Square, once a den of pornographic shops, is now a family-friendly venue. Retirees are giving up their suburban homes to move back into the City to enjoy the restaurants, the theatre, the opera, and museums. Mayor Bill de Blasio describes a “tale of two cities” in which the rising rents are making affordable housing scarce. He pushes for rent freezes, affordable housing, police accountability, a raise in the minimum wage, universal pre-K education, and limits on fossil fuels in new construction. In 2016, Governor Andrew Cuomo extends the 421-a tax exemption program which encouraged developers to build new residential properties with affordable housing components—but only if union-level wages are paid on such projects. The ideal of helping residents achieve a better life was at the forefront of political discourse. New York City was repeating the goals of the 1960s.

Housing Stability and Tenant Protection Act of 2019

The HSTPA arose against this background. Enacted in 2019, it eliminated the testing of the market to determine the need for rent stabilization. Today, rent stabilization is no longer an emergency measure, but a right given to tenants. HSTPA undid the Rent Regulation Reform Act and its modifications. Decontrolling apartments is no longer allowed due to high rents. The ability to charge one fortieth of the costs of improvements to an apartment to a tenant’s rent is capped to $15,000 over 15 years. The vacancy credit of 20 percent was abolished.

The Pendulum Swings Again: Key Similarities Between 1969 and 2019

Five years into the enactment of the HSPTA, we are seeing numerous negative developments in New York City’s real estate industry and housing landscape:

  • Landlords have once again severely curtailed improvements to vacant apartments and buildings.
  • The cost of renovating an apartment for rental can now outweigh the revenue collected from a new tenant.
  • Landlords have resorted to the warehousing of vacant apartments.
  • Insurance premiums have doubled and even tripled in the Bronx due to the increase of vacant units and the general lack of repairs to buildings.
  • The ability to sell or refinance multifamily buildings has declined.
  • The 421-a program has expired and there is no replacement on the horizon.

Ultimately, all of these changes are already beginning to lower New York City and New York State’s property values. This decrease is in turn resulting in less tax revenue, less real estate transfer taxes, and less mortgage taxes. When New York last felt this pressure, it took 24 years to find a compromise. In the intervening time, New York City suffered through inflation, union strikes, massive layoffs, crime surges, and near bankruptcy.

The HSTPA has removed all incentives for landlords to make improvements to their buildings. Landlords are not able to make upgrades required by law and are forced to pay penalties for these violations. Landlords are increasingly unable to meet their obligations, resulting in more defaulted loans and tax foreclosures. On the tenant side, renters are now living in buildings with fewer services, fewer repairs, and higher increases of rents. Meanwhile, Mayor Eric Adams was facing a $7.1 billion gap in early 2024. New York City has instituted a hiring freeze and cuts to environmental protection programs, public library services, and after school community programs. Without these cuts and more, New York City will not be able to meet its obligations.

Will We Repeat History?

The goal of making New York City livable and affordable for its entire population does not have to be built on an “us versus them” premise. We can learn from the past. We can do better.

Firstly, we must recognize that improving buildings helps landlords, tenants, New York City at large, and its population. To foster these improvements, the state, via federal grants, can offer below-market loans earmarked to improve the environmental condition of these buildings. Removing lead-based paint, converting to green energy, and upgrading to fuel-efficient systems can create jobs, improve buildings, and increase NYC’s tax revenue.

Secondly, rental increases determined by RGB must give heavier weight to the real expenses of a building as compared to the Consumer Price Index (CPI). This will create a more equitable approach to absorbing the expenses of buildings. Too often this process is governed more by the negotiation of politically palatable increases rather than the real costs of managing rent stabilized buildings.

Thirdly, the reinstatement of vacancy increases is essential in promoting the renovation of older apartments. Under HSTPA, they plummeted from 20 to 0 percent. A vacancy increase should be reinstated and likewise tied to the CPI.

Fourthly, a new 421-a exemption is critical to addressing the affordable housing crisis. The loss of this program has greatly reduced the construction of new buildings with affordable units. While Governor Kathy Hochul has continued to offer replacement programs, these have been rejected by construction unions for their failure to meet adequate labor standards. This negotiation must be bridged. Nobody wins by this impasse.

Let us look to the past to see the future. The inability to compromise on issues is not acceptable while almost 20 million New Yorkers (including nearly 8.5 million New York City residents) suffer. The lessons of the failed policies of the 1960s provide a cautionary tale of where New York City could once again be headed. Fortunately, history also provides a blueprint for a way out of it.

In a significant development for the New York real estate market, the Real Estate Board of New York (REBNY) has recently implemented changes to the rules governing buyer agent commissions. These changes aim to bring greater transparency and fairness to the home buying process, and are sure to impact both buyers and real estate agents moving forward.

Historically, buyer agent commissions have been paid by the seller, and these commissions were typically split between the listing agent and the buyer’s agent. However, this system has sometimes raised questions about potential conflicts of interest and whether it truly serves the best interests of the buyer.

The New Rules Regarding Buyer Agent Commissions

Disclosure of Commissions

One of the most significant changes is the requirement for listing agents to disclose the total commission offered to the buyer’s agent on a property listing. This new level of transparency aims to ensure that buyers have a clear understanding of the financial arrangements involved in a transaction.

No More ‘Blanket’ Commissions

Under the new rules, sellers and listing agents can no longer set a fixed commission rate that applies to all properties. Instead, commissions must be negotiated separately for each property, taking into consideration factors such as the property’s value, location, and market conditions.

Greater Flexibility for Buyers

With the elimination of blanket commissions, buyers now have more room for negotiation. This change empowers buyers to potentially secure more favorable terms and incentives, fostering a more competitive and dynamic market.

Avoiding Conflicts of Interest

By providing transparency in commission disclosures, the REBNY aims to reduce potential conflicts of interest. Buyers can be more confident that their agent is working in their best interest, rather than being swayed by higher commission rates.

What Are the Implications for Buyers?

For buyers, these changes represent a positive shift towards a more transparent and buyer-centric real estate market. With access to clearer information about commission structures, buyers can make more informed decisions and potentially negotiate better deals.

What Are the Implications for Agents?

Real estate agents will need to adapt to these new rules by becoming more adept at negotiating commission rates and providing transparent information to their clients. The changes also underscore the importance of maintaining a client-centric approach, as trust and transparency become even more critical in the buying process.

The recent changes made by the Real Estate Board of New York signal a positive step towards a more transparent and buyer-friendly real estate market. These alterations aim to empower buyers with greater knowledge and negotiating power, while also emphasizing the importance of trust and transparency in agent-client relationships. By embracing these changes, both buyers and agents stand to benefit from a more dynamic and fairer real estate landscape in New York.

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