I want to buy my next apartment under an LLC to protect my privacy. What do I need to know?

While there are a number of reasons that you might want to purchase an apartment as a Limited Liability Corporation (LLC)—such as privacy, asset protection, and as a safeguard against liability claims—be prepared to jump through a few extra hoops with your potential new building in order to do so—especially if it's a co-op, says Steven Wagner, a co-op and condo attorney with Wagner Berkow LLP and a longtime board member of his own 420-unit Manhattan co-op.

Most condo buildings make the process relatively simple.

"Unless there's some prohibition against LLC buyers in the bylaws of the condominium—and I don't believe I've ever seen any—you can just go ahead and buy," says Wagner. "Unlike a co-op, a condo can't say yes or no to your purchase, all they can do is exercise the board's right of first refusal, which very few buildings do." 

With a co-op, however, there are more potential problems to head off, and you'll want to find out about a particular building's policies before moving forward.

For starters, says Wagner, there used to be a section of the Internal Revenue Code that required buyers of co-ops to be individuals, and not an entity like an LLC or a trust. Though the law was changed many years ago, you'll find that some older buildings never bothered to change the language of their governing documents, meaning that the rules still technically prohibit a purchase by an LLC. 

Beyond that technicality, though, you're more likely to run into a board that's simply edgy about selling to an LLC buyer, and with good reason.

"The big concern in a co-op is that owning under an LLC could potentially allow you to circumvent their right to approve potential sales or sublets. Co-ops have the right to say no to sales or sublets," Wagner explains. "But if the LLC is the owner, I own the LLC, and then I sell my interest in the LLC to someone else, I haven't technically sold the apartment. The LLC is still the owner," says Wagner. "It's a similar issue with transferring the occupancy of the apartment to a member of the LLC. The board loses control of who can occupy an apartment if it is owned by an LLC."

For this reason, Wagner suggests finding out right off the bat what a building's policy is for allowing transfer of shares to an LLC.

If they don't specifically allow it (or if the board balks), you may still be able to get around the problem.

"What co-ops will usually want from you is something known as an occupancy agreement or an inducement agreement," says Wagner. "That puts restrictions on the sale of the apartment as well as who is allowed to occupy it. It will say that any change in occupancy is deemed a sublet or a transfer, and that any change in the ownership of the LLC is a transfer and requires approval of the board. In addition, co-ops might want the individual purchasing the co-op as an LLC to personally guarantee the payment of the maintenance charges."

This is because it can be legally difficult to go after an LLC in the event that maintenance isn't being paid, so boards feel more secure having an individual on the hook.

Another thing you'll want to clear up in advance: While individual owners are allowed to have immediate family members occupy the apartment with them, the same rules don't apply to an LLC, since an LLC isn't a person and can't have immediate family members. 

"Some co-ops ignore this and treat the immediate family issue as they would if you owned the apartment directly," says Wagner. "But some say, 'No, it can only be you and your significant other who are allowed to occupy. No immediate family members unless your children still live with you.'"

It might sound like a lot, but really the point here is to make sure that you and the board are on the same page.

"Generally speaking, I encourage co-ops to allow the transfer of shares to LLCs," says Wagner. "Why prevent someone from tax planning, so long as they aren't using the LLC to get around the building's approvals process?"

However, do keep in mind that this might be a bit of an expensive proposition. Wagner notes that the legal fees associated with drafting these extra agreements will fall to you, and that some co-ops even charge LLC buyers extra annual or monthly fees, though he doesn't encourage that.

"The bottom line is that you need to check into the policy and the costs before moving forward," says Wagner.

New York City real estate attorney Steven Wagner has more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272


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