Housing Development Fund Corporations (“HDFC”) are cooperative apartment corporations that are organized for the primary purpose of providing affordable housing opportunities to low-income households. HDFC’s are typically financed by New York City (“NYC”) and benefit from certain tax exemptions and benefits due to their status as affordable housing units.
Upon organizing the HDFC, NYC will sometimes require the HDFC to enter into a Regulatory Agreement which aims to ensure that that the HDFC continues to operate the premises as its designated purpose as affordable housing. The HDFC will enter into the Regulatory Agreement with NYC through its Department of Housing Preservation and Development (“HPD”) and such agreements usually cover a long-term period of many years.
Generally, the Regulatory Agreement will provide for regulations and restrictions in connection with corporate matters such as: primary residency requirements, income requirements based upon the surrounding area, rental and subletting restrictions, profit sharing or flip taxes to be paid to the HDFC upon resales and annual reporting and building monitoring programs. Sometimes, the HDFC will be required to hire a co-op monitor (example: the Urban Homestead Assistance Board (“UHAB”) which are non-profit entities who monitor the HDFC’s activities and assist them with regulatory compliance.
Upon the expiration of the Regulatory Agreement, these restrictions would no longer apply, however, the HDFC may nonetheless voluntarily (whether intentionally or by default) continue to abide by these restrictions in connection with the operation of the premises.
Overall, many people benefit from the existence of HDFCs and if you are in the market to purchase a HDFC co-op apartment, we recommend that you review the building’s Regulatory Agreement beforehand to understand any potential restrictions on your ownership of the apartment.