What is a leasehold condo—and how is it different from a leasehold co-op?
Leasehold co-ops—also sometimes known as ground lease or landlease buildings— long been known as one of the quirkier options in the NYC real estate ecosystem.
While the apartments are a relative bargain, this is for a good reason: Leasehold co-ops are so named because the co-operative doesn’t actually own the land that the building sits on—rather, they’re leasing it from a landlord. So while their leases are long (usually to the tune of 50 to 100 years, or even longer), this creates the risky proposition of eviction once the lease is up—or even sooner, if the landlord finds the co-operative to be in violation of the rules. There’s also the expensive prospect of the shareholders collectively purchasing the land, and facing much higher monthlies. (More details on these kinds of co-ops here.)
But these buildings have an even lesser-known sibling in the world of condominiums, known as leasehold condos. In this scenario, condo owners get an actual deed and therefore own their property, even though the building is technically under lease to a larger ownership entity, to which it pays rent.
“Leasehold condos are an anomaly,” says Wagner Berkow attorney Steve Wagner, who has worked extensively with leasehold buildings. “And they only exist in two places: Roosevelt Island and Battery Park City.”
In both neighborhoods, leasehold condos are owned by state agencies, making them a somewhat safer bet than leasehold co-ops, which are generally owned by private landlords, who are more likely to try to evict tenants based on issues such as non-payment, or failure to properly maintain the buillding.
“Think of it like a regular condominium, but instead of owning a little piece of the land, each unit owner owns a little piece of the lease,” says Wagner. And unlike leasehold co-ops, where landlords have been known to attempt evictions of the entire co-operative (for instance, for maintenance issues or dangerous conditions), it’s more standard in leasehold condos for public authorities that own the buildings to go after wayward individual owners instead.
“If one unit owner didn’t pay their common charges, for instance, then Battery Park wouldn’t terminate the lease for the whole condominium, they have the ability to terminate the lease for that individual unit owner,” says Wagner. Since every person owns a little portion of the lease, it’s simply not possible for the owners of leasehold condo buildings to terminate the entire building at once. (As opposed to a co-op building, where there are many shareholders but one collective lease.)
But one major thing to keep in mind here is the common charges, which are structured differently than your typical condo. “If you’re in a leasehold condo, the common charges are probably going to be higher than in a comparable condo,” says Wagner, though on the flip side, you won’t receive a separate tax bill.
Leasehold condo owners technically don’t pay taxes, but rather, have payments known as PILOT (Payment in Lieu of Taxes) rolled into the building’s rent, which are all lumped into the common charges. In Battery Park City, the rent in leasehold condos also includes money to maintain the local parks.
One thing to watch out for is the fact that the owners of leasehold condos have the opportunity to re-set the rent every 25 years, and to bring it closer to current market value. “But since the owners are public authorities, it’s more of a political, public process, so it’s not like they’re going to say, ‘We’re tripling the rent,'” says Wagner. “And even at the end of these leases that were 75 years long, it’s likely that they will be renewed, because public authorities are not in the business of throwing people out on the street.”
One nice silver lining to your potentially high monthlies in a leasehold: If you live in Battery Park City, some of the money collected from these condo leases is used, in turn, to fund affordable housing projects.