This is something I know all too much about, both as a real estate lawyer and vice president of my co-op.
Let’s start with rent regulation. The initial rent regulation in New York City started in the World War II era to prevent price gouging in tight housing market. It has persisted since then because of the continuing tight housing conditions , particularly in Manhattan, where rent regulation has inhibited the construction of rental housing stock because it limited the economic return available. In the other boroughs, however, the regulated rents have historically been comparable to the unregulated rents, so it has been a much smaller factor there.
There are actually two flavors of rent regulation in New York, rent control and rent stabilization. Rent control is the better deal, but it is rare as the tenant had to be living in the apartment since 1978. Rent stabilization occurs in buildings that were built before certain dates and/or get certain tax benefits, and once a rent controlled tenant moves out, the apartment becomes rent stabilized. Both systems, however, operate pretty similarly, and each may only have rent increases in percentages specified annually by a government board, though landlords may get additional increases for capital improvements to the individual apartments or the building.
Under either system, the apartment must be the primary residence of the tenant, and a tenant may be evicted for non-primary residence. Under limited circumstances, if a specified family member is living in the apartment with the registered tenant for more than two years, the family member may succeed to the rent regulated tenancy. If an individual owns the building and needs a stabilized apartment for his or her personal use, if he or she jumps through the proper hoops, he or she may evict the stabilized tenant, though if the tenant is disabled or a senior citizen, the landlord must provide equivalent housing.
These days, the two most popular ways to remove an apartment from rent stabilization are vacancy decontrol and high-income decontrol. When a stabilized apartment becomes vacant, the landlord may take a large (approx 20%) increase rent, and if this increase (plus any capital improvement increases) puts the regulated rent over $2,000 per month, the apartment is automatically decontrolled. Also, if the apartment’s stabilized rent is over $2,000 per month, and the combined household income of the occupants exceeds $150,000 per year, the rent may become unregulated. Perversely, if the apartment rents for less than $2,000 per month, the tenants’ income may be higher than this and the apartment stays regulated. Finally, if a regulated building is converted to co-op or condo, the regulated tenants who stay in the building remain regulated after conversion, but once they vacate, their apartments become decontrolled.
This brings us to co-ops and condos. As a practical matter, there is little difference between the two forms, though there are significant legal differences. In a condo, the owner will own (in the same legal way the owner of a single family home owns his or her home) your apartment, as defined in the declaration of condominium as a cube of space in the sky. The owner will also own a specified percentage share of the “common elements” defined in the declaration to include the hallways, elevators, roof, basement, boiler and other systems, and other parts of the building which are not individual apartments. Each condominium unit is a separate tax lot, so the owner must pay real estate taxes directly to the city. Each owner is also responsible for paying for his or her proportionate share of the “common charges” for the upkeep of the common elements, as assessed by the condominium’s board of managers. The owner may obtain a mortgage on the unit which is legally the same as the mortgage taken out on a single family home. The owner may also freely sell or transfer his or her ownership to any person, corporation or other legal entity, though the condo typically retains a right of first refusal (rarely exercised), in which the condo has the right to purchase the unit on the same terms that the owner is offering it for sale to a third party.
In a co-op, a corporation owns the building, and each owner (technically a “tenant-shareholder”) owns shares in the building to which are attached a “proprietary lease”, which allows the owner to lease a particular apartment for the duration of the co-op, with the number of shares connected with a particular apartment proportional to to the value of the apartment (at least at the time the co-op was set up). The owner pays “maintenance” (technically rent under the proprietary lease) in an amount proportionate to the number of shares owned, which covers building operations, real estate taxes (which are assessed against the building as a whole rather than against individual units), and, in most co-ops, payments on a mortgage which encumbers the building as a whole. Individual owners may also have “mortgages” on their apartments, though these are technically not mortgages but loans secured by the shares and proprietary lease. Most co-ops provide that the approval of the co-op’s board of directors is required to sell or sublease an apartment, most co-op boards require detailed financial disclosure and will reject candidates who do not meet their financial standards. In addition, boards may reject candidates for any other reason so long as it isn’t a legally prohibited reason like race, religion, nationality, sexual orientation, etc. A limited number of buildings like to restrict themselves to people of a certain social class, though they are often believed to illegally discriminate. More common types of non-financial reasons to reject potential purchasers include boards who will not sell to students or to people who do not intend to live in the apartment full time. In addition, most co-ops prohibit sales to corporations or other businesses.
Typically, a condo will sell for about 25% more than a comparable co-op because the condo will usually have lower monthly charges because there is typically no mortgage on the building as a whole included in the monthly payments. In addition, the absence of restrictions on sales adds value, as they can be purchased by corporations, trusts and people who do not want (or might not survive) the financial scrutiny of a co-op (including foreigners without US assets, which many co-ops will not accept). However, as a general matter, there isn’t much difference for individuals.