From time to time, buyers wish to purchase an apartment that it is part of a cooperative which does not own the land upon which the building is situated but rather leases it from another party. Such a property is known as a “Land Lease Building”. The buyer then asks whether purchasing an apartment in a land lease building is a wise decision.
Generally, there is a negative connotation in purchasing an apartment in a land lease building. There is an unwritten taboo associated with such apartments. Real estate brokers have indicated to me that they would never let a client purchase an apartment in a land lease building. One well known broker even told me once that you’d have to be crazy to buy in a land lease building. The reasoning for such thinking is that there is uncertainty associated with the building. What if the land owner decides not to renew the lease when it expires? At that juncture, the cooperative must vacate the land and return it back to the land owner. Thus, the shares and apartment purchased by a buyer become virtually worthless.
Another drawback is that the maintenance in such buildings is generally higher than in conventional cooperatives which own their land. The land lease cooperative may also seek to buy the land from the land owner at a future point in time. In order to do so, it will issue an assessment against current cooperative owners to fund such a purchase and likely carry a mortgage which will also increase maintenance. Because of the uncertainty, many lenders will not provide financing for the purchase of an apartment in a land lease building.
We’ve had a number of clients who have purchased apartments in prestigious land lease buildings throughout New York City. Such buildings exist on Fifth Avenue and throughout Manhattan. Generally, an apartment at a land lease building will sell at a discount relevant to other buildings. This may be fine for a buyer who is willing to accept some risk as to the future of the cooperative in exchange for a lower purchase price.