Published: Winter 1998

LEGISLATIVE PRIORITIES FOR 1998

The short but challenging list of legislation that CNYC would like to see passed this year would significantly improve the quality of life of New Yorkers who make their homes in cooperatives and condominiums. Many years of work have preceded CNYC's strong push to bring home some big winners in 1998. Cooperation and participation from our members will be vital to our success.

IRC SECTION 277 DOES NOT APPLY TO HOUSING COOPERATIVES
See Section 277 for an update on efforts in the courts and in Congress to affirm that Section 277 of the Internal Revenue Code should not be applied to housing cooperatives.

IRC SECTION 216
SHOULD NOT CONSIDER
CERTAIN REVENUE
Section 216 of the Internal Revenue Code sets stringent requirements for qualifying as a housing cooperative. Cooperatives that meet the criteria of Section 216 can pass on to shareholders their proportional share of homeowner tax deductions for property taxes and mortgage interest paid by the cooperative. The 80/20 rule of Section 216 requires that a cooperative derive 80% of its revenue from tenant stockholders. However, certain problem situations have been identified which destroy the 80/20 balance. For example, when cooperatives have taken over a number of occupied apartments from a defaulting sponsor, the rent from these units can exceed 20% of the cooperative's revenue. CNYC has proposed that the 80/20 calculation exclude certain specific factors such as this. Senators Moynihan and D'Amato are reviewing this proposal.

TAX REFORM GOALS
Property tax goals are discussed on pages 1, 4 and 5 of this Newsletter, and will be the topic of the April 30th meeting of the Action Committee for Reasonable Real Estate Taxes.

SATELLITE DISH PLACEMENT
IS A BUILDING'S DECISION
Recent federal legislation authorizes individuals to use satellite dishes and to install receptors. As regulations are prepared for the implementation of this legislation, CNYC strongly supports the National Association of Housing Cooperatives' (NAHC) effort to affirm the right of a cooperative or condominium to protect the building envelope by developing its own rules for the placement of satellite dishes.

PROTECT BOARDS
FROM CRIMINAL LIABILITY
The window guard issue has led Assemblymembers Ivan Lafayette and Jeff Dinowitz and State Senator Frank Padavan to introduce A.8891/S.5999, designed to protect volunteer board members of cooperatives and condominiums from criminal liability if they have not willfully ignored or violated a law.

TRIAL PART NOW NEEDED IN THE HOUSING COURT
CNYC has been advocating for years a separate part in Housing Court for issues relating to cooperatives and condominiums. The proposed reform of the New York State court system includes pilot resolution parts in the Housing Court, which have already begun hearing cases involving cooperatives and condominiums. CNYC is monitoring the progress of these pilots with optimism. However, in addition to the resolution part, CNYC seeks legislation to create a separate trial part devoted to cooperatives and condominiums, as well.

EXTEND J-51 TAX INCENTIVES
Begun in 1954, the J-51 program provides tax incentives for capital improvements to the housing stock of New York City. This fine program, discussed in the Winter 1998 installment of On the Money, has made rehabilitation affordable and has significantly helped revitalize the city. As they are converted, cooperatives and condominiums enjoy three years of J-51 eligibility for qualifying improvements; many continue to be eligible thereafter. This program must be renewed periodically through the State legislature, which must pass enabling legislation, followed by implementing legislation in the City Council. With less than two years remaining before the current program sunsets, CNYC is beginning early to ensure that the J-51 program continues.

You can get more information about J-51 on the Department of Housing Preservation and Development's Website.

HELP CONDOMINIUMS COLLECT DELINQUENT CHARGES
If a condominium unit owner fails to pay carrying charges, the condominium has limited recourse. Assemblyman John Ravitz has proposed legislation to give the condominium more leverage by enabling it to curtail non-essential services to unit owners who are in default.

COMPLETING THE CONVERSION
CNYC seeks legislation to require that sponsors continue to sell units until a new cooperative or condominium has a sufficient level of ownership (usually 50% to 60%) to function viably. At the 60% sold mark, the resident owners should have a reasonable level of control of their homes, and financing should be available for the purchase of units so that owners are not 'locked in' and forced to sublet outgrown units.

Current conversion law has no absolute requirement that a sponsor sell units as they become available. And in recent years, there have been strong economic reasons for sponsors to prefer to rent vacated units rather than sell them. However, in minimally converted buildings, this practice has severely handicapped the few who have purchased, destroying the market value of their apartments. CNYC has several suggestions in this area.

DISCLOSE INTENT TO RENT
CNYC Board Chairman Stuart Saft has drafted legislation that would require board approval when a sponsor wants to rent a unit, unless the offering plan or its subsequent amendments has disclosed that the sponsor intends to rent vacant units rather than sell them. This should help level the playing field. The disclosure would warn purchasers that there could be years of rental of sponsor units, or the approval process could bring about a give-and-take between sponsor and board as each vacancy is considered. It does not unduly hamper the ability of the sponsor to make economic decisions, but it does help pave the way for a viable cooperative.

RESIDENT CONTROL AT CONVERSION
Another long-held CNYC goal is to require that resident shareholders or unit owners be given control of the board as soon as a conversion is declared effective. CNYC maintains that this will bring about more active and productive negotiations between sponsors and residents, with conversions declared effective only after a substantial number of units are sold.

LIMIT SPONSOR CONTROL OF ELECTIONS
Currently, many sponsors who technically relinquish control of the board, as required by law, perpetuate their control by using the shares they own or control to elect shareholders or unit owners who will support sponsor priorities. Perhaps the sponsor provided the mortgage on this person's unit or sold them the apartment at a discount. Perhaps the skills and knowledge of the sponsor simply won the unwavering respect of this individual. Whatever the reason, the present state of the law has permitted this type of anomalous situation far too frequently. The courts have rejected the logical solution of restricting the sponsor to appointing the board members to which it is entitled and not allowing the sponsor to also vote for shareholder board members. Legislative action could change this situation.