It is said that the only two things that you can truly count on are death and taxes but if you own a co-op or condo and haven’t adequately prepared for your own eventual demise, you can also count on your passing causing even more grief for the people you’ve left behind.
“The owner of an apartment often believes that he or she has absolute freedom to dispose of the apartment as desired,” says Marc Landis, managing partner of the Manhattan-based law firm Phillips Nizer LLP. Sadly however, what happens to a co-op or condo during major life events, such as a death or divorce, isn’t actually dictated by the shareholder or unit owner, but rather by the building’s governing documents.
That fact is often learned when it’s too late to do anything about it, and family members are left wondering why they can’t have that penthouse unit that Aunt Jane lived in. Regardless of what you may have promised them, whether or not you can leave your home to your children, your partner, or to your Uncle Fred depends on whether you own a co-op or a condo, as well as what is written in your particular building's proprietary lease, declaration of covenants, conditions and restrictions and other governing documents.
When a tenant buys into a co-op building, he or she is actually purchasing a percentage of shares in the cooperative corporation that owns it—not the unit itself. Essentially, the shareholder is leasing their unit from the corporation. So while it may feel like homeownership and the shareholder might assume they can then bequeath the shares to a loved one should the resident shareholder pass away, that’s not always the case. The bylaws of co-ops typically have restrictions on what a resident may and may not do with their shares, including how they can be transferred upon the shareholder's death.
Bylaws in a co-op dictate how the corporation operates, which is different from the bylaws in a condominium. “The difference between the treatment of condo and co-op ownership during a death or divorce is that generally condo ownership means that the owner has the right to freely transfer ownership, subject only to limited restrictions, such as the condo’s right of first refusal,” says Landis. “The owner of shares in a cooperative corporation must obtain approval from the corporation’s board of directors or shareholders before transferring ownership.”