Co-op Boards Face Challenges in Transferring Shares to Trusts

All co-ops share two basic concerns — who is living in an apartment and who is responsible for paying the maintenance. It seems simple, but things get complicated when the shareholder is a trust. 

Mindy Stern
Partner, Schwartz Sladkus Reich Greenberg Atlas

Money matters. When shareholders request to transfer ownership of their shares to a trust, boards need to make sure it’s clear what the rules are. The fact that the title belongs to a trust rather than an individual doesn’t change the fact that the occupancy of that apartment is governed by the proprietary lease. The shareholder has to sign an agreement guaranteeing to pay the maintenance. You still have the same individual who owned the apartment before the transfer being held responsible for all the financial obligations after the transfer. And the shareholder requesting this accommodation — which is, after all, what a trust transfer is — is responsible for paying the fees of the co-op’s attorney, who has to review the trust documents and sometimes request certain amendments to it, as well as review the proprietary lease and the share certificate before preparing the conditional consent agreement.

Occupancy concerns. Let’s say the shareholder dies, and the daughter, who is the beneficiary of the trust and inherits the apartment, wants to move in. When a board issues its conditional consent to the transfer, it will say: “We don’t care what your will or this trust specifies as to who would inherit the apartment upon the original shareholder’s death. That still will require board approval.” The board might decide that the daughter doesn’t have the financial wherewithal to pay the maintenance and other costs associated with the apartment. If the daughter is not approved, then the apartment has to be sold. The co-op has the same recourse as it would with any other shareholder under the proprietary lease.