Q&A: One More Unit Co-op Conversion

Q I am the vice president of a board in a 10-unit co-op located in Queens with an unoccupied residential basement apartment that was originally a live-in super’s apartment. We, the board, are exploring the possibility of renovating it and selling it as an 11th unit.

We would like to know what the procedure is for converting a 10-unit to an 11-unit co-op as well as the tax ramifications and any other caveats that might be involved. Can you offer some information or advice on how to find out what is involved in the process?

—Queens Vice President

A “The threshold question that must be answered regarding the sale of your former super’s apartment is whether occupancy of the apartment by anyone other than the building’s superintendent is legal,” according to Mary L. Kosmark, Esq. of the Manhattan-based law firm of Rosen & Livingston. “It is often true that basement space does not meet current statutory requirements for ‘living rooms.’ In the past, an exception was made for superintendents’ apartments and those that were pre-existing were grandfathered under the new law. In order to make the determination as to the legal use of the basement space, an architect familiar with the New York City Building Code should be consulted.

“Assuming that there is a possibility that the apartment can be legally occupied, the co-op would then need to allocate shares to the apartment from its treasury and would then apply to the New York State Attorney General for a ‘no-action letter’ to authorize the sale of the shares. The co-op’s attorney would make the application. It would also require the participation of a real estate professional qualified to issue an opinion that the share allocation meets the ‘reasonable relationship’ test contained in Section 216 of the Internal Revenue Service code. The sale itself would not be a taxable event for income tax purposes, but New York State and City transfer taxes would be payable.”

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