How can our co-op or condo building pay for capital improvements?
Upgrades, repairs, maintenance and replacement of your building's structure and systems can be internally or externally funded, though ultimately all costs are passed on to owners.
| Internal Funding Options | |
|---|---|
Monthly Dues (Maintenance or Common Charges) | Owners make monthly payments for shared expenses for items like heating, staff, and elevators. In a co-op, the monthly payment is known as maintenance, or maintenance fees; in a condo, the owner pays what is called common charges (often abbreviated CC). |
| Special Assessments | Assessments are temporary charges with a specific end date. They are commonly used to pay for capital projects, and they increase the cost basis for tax purposes when selling the apartment. Some bylaws require special assessments for all capital projects, while others don’t. Some boards choose to use special assessments for every repair to avoid increases in maintenance or common charges, while other boards never or rarely use special assessments. |
| Transfer Fees | Transfer fees, or sales fees, are fees commonly imposed on buyers or sellers in New York City co-ops and condos upon sale of an apartment. These fees are an alternative means to raise capital for capital projects and maintenance repairs, thus alleviating the need for assessments. The amounts of transfer fees, their structure, and how they can be changed are generally determined by the bylaws. Here are some ways that the transfer fees can be structured:
Transfer fees are colloquially referred to as “flip taxes.” However, they are not taxes, since they are imposed by the co-op or condo, not by the government. But the catchy name has stuck. |
| Sale of Unsold Units | While only a minority of NYC buildings have the luxury of owning unsold apartments (these are the apartments where the resident chose to continue renting as opposed to buying when the building converted to co-op or condo), the ones that do often sell those apartments when renters move out. Some bylaws require the proceeds from the unsold apartments to be specifically used for capital improvements. |
| External Funding Options | |
|---|---|
| Refinance | For a co-op, refinancing the existing underlying mortgage and increasing the loan amount is a viable option, especially during times when interest rates are low. |
| Project loans | Project or construction loans are typically tied to a particular project and backed by a special assessment. These types of loans are more commonly available to condos and are harder to get for co-ops as their underlying mortgage lender often has restrictions to additional lending from other institutions. There are some lenders that have terms that do not require approval by the underlying mortgage lender. |
| PACE Loans | Property Assessed Clean Energy (PACE) loan is a type of financing available to make energy efficiency upgrades and renewable energy improvements on a commercial or residential property. Because co-op underlying lenders often restrict additional lending, PACE loans are not always available to co-ops. |
| Lease arrangements | Some projects can be funded through a lease arrangement. One example of such a structure is the installation of solar arrays on a roof. Instead of the co-op and condo association paying for and owning the solar panels and equipment, the installer leases the roof space and pays the co-op or condo “rent” for the designated roof space. The terms of these types of arrangements vary, but they can include any required repairs or upgrades of the roof. They also frequently sell the energy produced by the solar arrays back to the building to cover some of its electric usage for a predetermined rate. |
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