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Boards & Buildings > Finance

How can our co-op or condo building pay for capital improvements?

October 10, 2023 - 12:30AM
Written by
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In a nutshell
Depending on the project and whether your building is a co-op or condo, capital improvements may be financed with maintenance or common charges, special assessments, transfer fees, refinancing, project loans, PACE loans, and lease arrangements for specific projects such as solar installations.

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 AssessmentsAssessments 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:

  • A flat fee 
  • Dollar amount per share or percent ownership
  • Percent of the sales price
  • Percent of the net profit 
  • A sliding scale to encourage long-term residency 

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

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 loansProject 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 arrangementsSome 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.



Tina Larsson Headshot
Tina Larsson is the co-founder of The Folson Group, New York City's leading co-op and condo consultancy. A prominent speaker on proactive co-op/condo leadership and ESG matters, Tina is the author of Living the High Life: How Smart Co-op and Condo Owners Protect Themselves and Their Investment. In... [read more]