When Condo Owners Turn Apartments into Hotel Rooms: What Boards Can Do

The condo in question is an eight-story, 32-unit building that dates from the early 20th century. It converted from rental to condo in the mid-1980s. "There's a unit-owner who appears to be living much of the time somewhere else in a second home," says Gerry Fifer, an attorney who serves as the condo board's president. "While he's away," she notes, "he rents his apartment for a very short time — a holiday, a weekend. Other unit-owners have complained about strangers coming and going. It's possibly undermining the security of the building. We don't know how many keys are out there or who has them."

Fifer, who has served on the condo board for 16 years and as its president since 2002, adds that there are annoyances other than compromised security. Short-term visitors tend not to know how to dispose of trash properly, for instance, or how to recycle. The front door locks have had to be replaced several times because visitors didn't know how to use the keys and so forced the locks, damaging them.

"We haven't had any rowdy guests yet," she adds, "but that's a possibility. The situation's too unknown and too uncontrollable. You're increasing the chance that something undesirable is going to happen."

Check the Bylaws

Fifer points out that subtenants are not forbidden outright. But turning an apartment into a hotel is a clear violation of her condo's bylaws, which state: "No transient occupant other than a permitted guest may be accommodated [in a unit]."

The board's only other control is the right of first-refusal for potential subtenants. If the board rebuffs a unit-owner's proposed subtenant, it must then lease the unit or cover the owner's loss of income from the aborted sublease. But the offending owner has never even offered the board the chance to refuse or approve any of his guests.

One solution would be to amend the bylaws. Yet Fifer says the condo's board is averse to doing this because it's a "long, laborious process" and it requires approval by a two-thirds "super-majority" of the unit-owners.

Instead, the board had property manager Ricqy Cruz of Tudor Realty send a letter to the resident outlining the board's concerns. The resident, says Cruz, "responded with a phone call indicating that he's not in violation."

Next step: Call your lawyer. "The condo's attorney has sent him a notice to cure the violation by removing the illegal subtenants or submitting a lease package," says Cruz. A lease package is an application requesting board approval of a subtenant. The unit-owner has not yet responded to the attorney's letter.

There is another option. "Depending on what the bylaws say, the board could seek a court order preventing the owner from leasing his unit to anyone," says attorney Steven Sladkus, a partner at Wolf Haldenstein Adler Freeman & Herz who specializes in co-op and condo law but is not connected with the case. "What he's doing is a breach of contract."

Unleash the IRS

And let's not forget the tax angle. In July 2008, New York City businessman Raziel Ofer pleaded guilty to grand larceny for failing to report $1.4 million in state sales taxes after subletting numerous apartments as hotel rooms. Ofer faces up to $1.89 million in back taxes, interest and penalties, and a maximum of 25 years in prison.

As a sign of just how much the condo landscape is changing — and just how distasteful short-term visitors are to many condo owners — some of the city's condos have gone back to the old way co-ops tried to fight illegal sublets: Instead of placing a maximum stay on potential subtenants or forbidding them outright, some condos are demanding an extended minimum stay, sometimes of a year or more.

"With a minimum stay, you don't have to argue," says Fifer, the board president. "It's an attempt by these new condos to get more stability in their building."

And it may represent a step to making condos as rule-bound as co-ops. "More and more condos are enacting rules that bring them closer to co-op status – in terms of rules affecting sales, leasing, pets," says Sladkus, the attorney. "And a lot of people don't like it."

Adapted from Habitat November 2008. For the complete article and more,  join our Archive >>