I'm getting ready to buy a co-op and trying to make sense of all the paperwork. What's the difference between an offering plan and a proprietary lease?
Both documents contain important information about the co-op that shareholders should acquaint themselves with, our experts say, but also have some important distinctions.
"The co-op offering plan is the document that is created in order to turn a building into a co-op, whether it’s a newly constructed building or a rental that has been converted into a co-op," says Deanna Kory, a broker with Corcoran. "It is usually a rather large book with a lot of information in it, offers the apartments for sale both to the people inside the building and to the outside public."
Offering plans are reviewed by the Real Estate Finance Bureau and filed with New York State Attorney General. They include details about the building's physical characteristics, its governance, and its finances.
"Offering plans provide a description of the cooperative building, budget and cost information, and a summary of the rights of the cooperative shareholders, the board of directors and the sponsor," explains Jeffrey Reich, a partner at Schwartz Sladkus Reich Greenberg Atlas. "Offering plans also include copies of the cooperative by-laws, property description reports, the form of contract of sale, certifications of the various professions involved in the preparation of the offering plan amount, and other relevant documents."
The proprietary lease is one of the documents you will find within the co-op's offering plan, and it covers the specifics of the relationship between shareholders and the cooperative itself, outlining the rules for renovating, subletting, maintenance, repairs, and more.
"A proprietary lease governs the landlord-tenant relationship that exists between a cooperative apartment corporation (as the landlord) and the shareholder (as a tenant)," Reich explains. "The proprietary lease, along with the cooperative stock certificate, is the shareholder’s evidence of ownership."
All this paperwork adds up to a hefty and often complex document, which is why it's so important to hire a good real estate attorney to help parse and negotiate your contract before you close on an apartment.
Current co-op shareholders should keep in mind that buildings often amend their proprietary leases when they need to extend the leases or make changes to the bylaws. If you're curious, you can ask for an updated copy.
"If you need to get your building’s current proprietary lease, ask the managing agent for the most up-to-date proprietary lease that they have, because the one in the offering plan may have been amended," Kory says.
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