Adam Leitman Bailey, P.C. Facilitates Adoption of First Sale Capital Assessment for Mitchell-Lama Client
Adam Leitman Bailey, P.C. represents a number of Mitchell-Lama co-op developments throughout New York City. The Mitchell-Lama Program provides housing that is affordable to the middle class across New York State and is overseen by NYC’s Department of Housing Preservation and Development (HPD). An ongoing obstacle that many Mitchell-Lama co-ops face is keeping maintenance charges affordable in a world of ever-increasing operating costs. Oftentimes, developments are forced to assess their owners or significantly increase maintenance costs to obtain needed funds for maintenance and repairs.
To avoid having to assess its current owners, while at the same time generating significant capital for its Mitchell-Lama client, Adam Leitman Bailey, P.C. identified and recommended a First Sale Capital Assessment (FSCA) to the co-op’s board of directors. The main benefit of the First Sale Capital Assessment is that current owners do not pay anything. Only new incoming shareholders pay the one-time assessment (or current shareholders only if they are moving into a larger apartment). The money generated through the FSCA can only be used for capital improvements and reserves.
In Mitchell-Lamas, when an apartment becomes available, it is given to the next person on the waiting list overseen by HPD. The purchase price, or “equity”, is pre-determined and governed by HPD. Here, the proposed FSCA called for a 100% increase in the equity price for available apartments.
An example is as follows: If the books and records of the co-op show the Equity for the Shares allocated to X apartment to be $10,000.00 on the date of the First Sale of said Shares, then on the date of such First Sale (i.e., the first time after the FSCA is passed that the Shares are sold by the Seller owning the Shares to a Purchaser from the Cooperative’s external or internal waiting list), the Purchaser shall pay to the Seller $20,000.00 for the Shares, $10,000.00 of which shall constitute Equity to be retained by the Seller, less such sums as are due the Cooperative (such as unpaid carrying charges and assessments and restoration charges), and $10,000.00 of which shall be paid by the Seller to the Cooperative. Upon the subsequent sale of the Shares by the said Purchaser, the amount to be paid to the selling Purchaser for the Purchaser’s Shares by the person purchasing the Shares shall be $20,000.00, plus such other amounts as are shown on the co-op’s books and records (such as increased mortgage amortization, and any other capital assessments or equity increases paid by the Purchaser), and less such sums as are due the co-op.
As apartments turn over, the co-op ultimately stands to earn over $1 million in excess funds for much-needed capital improvements. Adam Leitman Bailey, P.C. prepared comprehensive explanation materials for shareholders so they could fully understand the FSCA before voting on the same. In addition, Adam Leitman Bailey, P.C. attended various meetings of the shareholders to explain the FSCA and answer shareholder questions, of which there were many. Finally, Adam Leitman Bailey, P.C. helped push the approval of the FSCA through HPD. This entire process took well over a year to achieve, and now the co-op is in a much better financial position without having to assess current shareholders.
Rachel Sigmund McGinley represented the client in this matter.