Asked and Answered
My purchase application was approved by the co-op Board, but it is conditioned upon my providing a maintenance deposit and guaranty by my parents. Do I have to comply with the conditions?If you want to go forward with the purchase…yes. Paragraph 6.1 of the current printed portion of the contract of sale for the purchase of cooperative shares provides as follows:
“6.1 This sale is subject to the unconditional consent of the Corporation.”
Translated into Human-speak: if the Board attempts to impose any conditions on your approval, you have the opportunity to terminate the contract, as the approval contingency has not been satisfied; that is, you have not been unconditionally approved by the Board. All that being said, when folks bite the bullet and agree to be subject to the approval of a co-op Board, they know that Boards can be difficult and often make the approval of a purchaser subject to financial conditions. Those conditions often come in two flavors: a maintenance deposit, usually of two years’ worth of monthly maintenance payments; and/or a guaranty of payment of the purchaser’s obligations under the Proprietary Lease (usually provided by the purchaser’s parents).
When a maintenance deposit is given, an agreement is signed between the cooperative corporation and the new tenant-shareholder, pursuant to which the deposit is held indefinitely to secure the payment of the purchaser’s obligations. Once a purchaser is in residence in the co-op for a number of years, he or she can request the return of the deposit (on the grounds that the purchaser has been a good camper and has paid all of the obligations due the co-op on time). Some co-ops will return the deposit before you sell the apartment and some co-ops will not. So, if your maintenance is $2,000.00 a month and you have to deposit two year’s worth, that’s a lot of money for someone else to be holding for an unlimited period of time…but that’s the way it is.
With a guaranty of the purchaser’s obligations under the Proprietary Lease, the burden is on the guarantor (usually mom and dad). If the shareholder doesn’t perform or if the shareholder causes the cooperative to suffer a financial injury, such as an uninsured loss due to a flood or other damage, the shareholder’s guarantor would be obligated to hold the cooperative harmless for the loss not covered by the tenant-shareholder. Assuming the shareholder has proper insurance coverage in place, the risk is minimal and giving a guaranty is significantly less burdensome than providing a maintenance deposit.
Although co-ops usually don’t ask for both a maintenance deposit and a guaranty, twitchy co-ops can and do ask for both.
Residential Reality: The co-op approval process will be a little bumpy and seat belts should be fastened.
A skilled broker will know at the beginning of the process whether a purchaser’s financials are a little shaky and will advise the purchaser that the Board may request financial security in order to approve the purchase application. Every now and then the request for a deposit or a guaranty comes as a surprise, but that’s the exception and not the rule. You’ve come this far, just get it done.
