HDFC Shareholder Fact Sheet 1
September 2019
FACT SHEET FOR COOPERATIVE HDFC SHAREHOLDERS
By virtue of being an HDFC, the following requirements will always apply to your cooperative regardless of
whether it has an agreement with the City of New York. Even if your cooperative opts not to sign a new
regulatory
agreement, it will remain an HDFC subject to the requirements described in this Fact Sheet.
All HDFC cooperatives are incorporated under Article XI of the Private Housing Finance Law (“Article XI”)
and must comply with its requirements. Every HDFC cooperative is also bound by its governing corporate
documents (particularly its certificate of incorporation and by-laws) and any agreements binding the HDFC
and/or the property
that it owns (including, among other things, the deed by which the HDFC acquired the
property and any applicable
regulatory agreement or mortgage).
1. Maximum Income
Article XI requires HDFC cooperatives to provide housing for persons and families of low income.
Under the Private Housing Finance Law, this means persons and families whose household
income does not exceed 165% of area median income (“AMI”). Anyone purchasing shares in an
HDFC cooperative must meet this requirement. AMI is calculated by the federal government on
an annual basis, based on household size. HPD posts the current area median incomes for the
New York Metro area on its website, available at:
https://www1.nyc.gov/site/hpd/renters/area-median-income.page
This is a statutory requirement, so it applies even if your cooperative’s agreements expire and
even if its corporate documents or agreements are silent on the subject. Your cooperative’s
governing corporate documents or agreements may set a maximum income lower than that
required by Article XI:
• Some HDFCs have corporate documents or agreements that require all shareholders to
have a lower income, such as 120% of AMI or below.
• Other HDFCs have corporate documents or agreements that refer to a formula for
determining the maximum income for new shareholders. This formula provides that
shareholders may not earn more than 6 or 7 times (depending on family size) the monthly
maintenance, plus utilities, plus six percent of the purchase price of the apartment, all
multiplied by 12 to represent every month of the year.
o
HPD expects utilities (gas and electric) to run about $125/month for a 1-bedroom
apartment, $150/month for a 2-bedroom apartment and $175/month for a 3-
bedroom apartment.
o
Again, while such a formula in your HDFC’s corporate documents or agreements
may lower the
maximum income, it cannot raise it above the maximum allowable
under the statute.
Shareholders must comply with the lowest applicable income requirement. The HDFC Board must
ensure compliance with this requirement.
2. Maximum Sales Price
Sales prices should be affordable for a family that fits the income restrictions of your building.
Prices should be low enough such that a purchasing household would not spend more than 30%
of its income on housing costs, which include mortgage payments, maintenance payments, and
other potential costs.
HDFC Shareholder Fact Sheet 2
September 2019
3. Renting and Subletting
Almost all HDFC cooperatives have certificates of incorporation that require owner-occupancy, and Article
XI states that such corporations must be operated for the benefit of resident shareholders. While original
non-purchasing tenants may have been allowed to stay on as renters when the cooperative was first
created, and some HDFC cooperatives have rented vacant apartments to tenants, all apartments which
are or become vacant must be sold to income-eligible purchasers who have stated their intention to
owner- occupy. An HDFC should never rent a vacant apartment unless it is the superintendent’s unit.
Almost all HDFC cooperatives limit subletting. Although short-term subletting with Board permission is
acceptable where the shareholder intends to return to the apartment, long-term sublets are not
permissible. Generally, subletting should be limited to no more than 18 months in any 5-year period. In
addition, any proposed subtenant should be screened by the Board to ensure that the subtenant’s
household meets the applicable Maximum Income.
A shareholder should check the HDFC’s governing documents and any agreements binding the HDFC
and/or the property that it owns to determine these restrictions.
4. Flip Taxes
The sales of apartments in almost all HDFC cooperatives are subject to a “flip tax.” This means that,
when a shareholder sells his or her apartment, the sale profits must be divided between the selling
shareholder and the Board (and, in some cases, the City). A shareholder should check the corporate
governing documents, any agreements binding the HDFC and/or the property that it owns, the proprietary
lease from the cooperative, and the share certificate to determine whether such a “flip tax” applies and
the applicable allocation of profits.
5. Fiduciary Responsibility of Board Members
Board Members (Directors) are legally obligated to act in the best interests of the HDFC and its
shareholders. Directors are volunteer positions; property managers are paid. If a Director is being paid, it
should be for management work that the Director is performing for the corporation, such as collecting
rents, paying bills, supervising the janitor, or going to court on behalf of the HDFC. Directors should not
be receiving payment for any other reason. In all cases there should be volunteer Directors who
supervise the work of the manager.
Most HDFCs have a partial tax exemption placing a cap on the taxable value of the units. In most cases,
this partial tax exemption significantly lowers real estate taxes on the property. The resolutions that grant
these exemptions stipulate that this exemption is effective only as long as the project is owned and
operated by an HDFC that complies with the requirements of Article XI. HPD may revoke the exemption if
the property is not owned and operated in accordance with the applicable requirements.
6. Restrictions on Selling a Building Owned by an HDFC
Article XI restricts the ability of an HDFC to convert its building to a market rate cooperative, condominium
or rental project. In 2015, the New York State Attorney General published a guidance document outlining
the legal restrictions on converting an HDFC to a market rate project. The guidance document is available
online here: https://www.ag.ny.gov/sites/default/files/pdfs/bureaus/real_estate_finance/Effective-
memos/7.16.2015_Guidance_on_HDFC_Seeking_to_Transfer_or_Sell_Property.pdf
If you have questions about any of the issues covered by this Fact Sheet, please send an email to
[email protected]yc.gov. For other questions about best practices, HPD has enlisted the help of Neighborhood
Housing Services (NHS) to provide training and technical assistance to HDFC cooperatives. NHS can be reached
via email at coopinfo@nhsnyc.org or by phone at (212) 519-2500.
