They arrive at all hours of the day and night with duffel bags and rolling suitcases, asking for the keys to Apartment X, which are in an envelope at the desk. You suspect the apartment is being used as a transient hotel, but the unit-owner or shareholder claims the visitors are just out-of-town friends and relatives. So what can a board do? It’s not as though there’s a law against hospitality or having a wide social circle, so you figure your hands are tied.
First, the good news: they’re not. There is a law against using residential New York units as transient hotels. It went into effect in 2011 and defines “transient” as stays of fewer than 30 days. And many co-ops and condos have their own bylaws and house rules designed to prevent multiple short-term rentals for reasons ranging from security to preserving real-estate values.
The bad news is that many owners and shareholders have a powerful financial incentive to circumvent the rules and regulations: New York City hotels are among the most expensive in the United States, averaging $325 a night, meaning the demand for alternative accommodations is high. So, goes the argument, if you’re planning on taking an extended vacation or intend to sell but want to wait out a weak market by bunking elsewhere, why not make your apartment earn its keep?
That equation looks different from a board perspective: illegal short-term renting compromises overall security; encourages careless property damage that can extend beyond the offending apartment (one Manhattan co-op board member, Alberto Goldberger, recalls a garden party by illegal lessees that left candle wax all over the teak outdoor furniture); raises quality-of-life issues (excessive noise, smoking in no-smoking areas); may precipitate the loss of 421A tax abatements; and may make it hard for owners and shareholders to sell their properties, since many banks are skittish about writing individual mortgages on units in buildings with low owner-occupancy levels.
What’s a condo or co-op board to do when owners and shareholders are determined to circumvent the rules? First and foremost, says Beth Markowitz, president of Merlot Management, “It’s an issue of managing, which means being aware of what’s going on in the building.”
And the consensus is that building employees – doormen, resident managers, superintendents – are the first line of defense: “In our case, it’s usually the staff that notices,” says Wayne Broome, who’s on the board of a midtown Manhattan co-op. “Generally the tip-off is people with a lot of luggage asking for keys. We have a doorman five days a week, and a security service for the lobby. We have a pretty regular crew, so they’re like building employees.”
“It’s also important to have the right [documenting and reporting] systems in place and to keep them up to date,” advises Dan Wurtzel, president of Cooper Square Realty, “but systems are only as good as the people using them.”
Michael Wolfe, president of Midboro Management, concurs, adding that “some buildings translate rules into other languages for employees who aren’t fluent in English.”
No board wants to create a building-wide atmosphere of suspicion and mistrust, and many unit-owners/shareholders may not be comfortable with what can feel an awful lot like spying. But making them aware of the potential consequences of unregulated short-term rentals can cast the situation in a different light. It’s not narcing on your neighbors to let building management know there’s a parade of strangers traipsing in and out of a unit that opens onto the same corridors and is accessible via the same elevators their kids and spouses use every day.
“Surveillance cameras can help management identify apartments where there’s a lot of suspicious activity,” advises attorney Elliott Meisel, a partner at Brill & Meisel. However, he warns, “If you set up a camera that’s focused on one door, the building could be open to a legal challenge on the grounds of unlawful surveillance.” He adds: “A building with security cameras in the elevators and corridors wouldn’t be vulnerable to that.”
Attorney Geoffrey Mazel, a partner at Hankin & Mazel, also suggests flagging checks printed with an address other than that of the building. “One co-op I represented did a mailing to shareholders whose addresses didn’t match, asking them to explain. Some responded that they lived in Florida part of the year or something else reasonable; other cases merited further investigation.”
Steps to Take
What you do once you know where the problem lies, says Meisel, “depends on the culture of the building. You can send a letter from the managing agent and then, if there’s no response, progress first to a letter from the board’s lawyer and then to a default notice. But some boards go straight to the default notice for financial reasons; you can collect legal fees when you file a default notice, but not for having your lawyer send a letter.”
Wolfe also suggests notifying the owner’s lender, because banks “don’t want to keep giving money to borrowers who are violating the rules.” Markowitz says Merlot Management has achieved good results with fines, the trick being to figure out how large a fine will cancel out the potential for financial gain.
That’s not to say that the stick is always better than the carrot: Mazel represented a co-op with a history of lax enforcement whose board had finally decided to get its subletting house in order. The first step was to make a one-time amnesty offer to shareholders who were in violation but willing to clean up their acts. “Let’s say that out of ten units, six or seven can be persuaded to come into compliance. Litigation is expensive, and you’ve saved the co-op the cost of litigating ten cases rather than three or four.”
Litigating even one case can be a pricey proposition. Witness what happened at 139 East 30th Street, a Manhattan co-op Meisel represented in its efforts to evict a non-resident shareholder who claimed she needed apartment access for multiple employees of her home-based colonic irrigation business – while running online ads touting her apartment’s proximity to major tourist attractions and its “comfortable rooms” available at “daily, weekly and monthly” rates (for all the bizarre details, go to: http:/tinyurl.com/aokd9t4).
“That was litigated for over a year and cost between $60,000 and $70,000 in legal fees,” Meisel says. “A portion came from the co-op; we expect to collect a portion from the owner and in the process of evicting her the co-op will sell her shares at auction, and they’ll be deducted from the legal fees – the first lien on shares go to the lawyers.” Bottom line: even a portion of $60,000 to $70,000 is a lot to cough up in the short term, even when there’s a clear long-term benefit.
Meisel also debunks the myth that condominiums have little recourse if an owner decides to turn his or her apartment into a cozy little bed and breakfast.
“Co-ops and condos can both impose and enforce conditions of use,” he says. “It’s more that in condos the process is cumbersome. If a condo board wants to regulate use more intensely, it requires an amendment to the bylaws. And while a condo board can go to court for an injunction and get a monetary judgment, the owner’s bank has first dibs on proceeds from the unit’s sale. Since the bottom-feeders swoop in looking for a cheap buy when a condo unit is being sold under those circumstances, there may not be much left after the mortgage is paid and the condo winds up in the lurch.”
Perhaps the best way of dealing with illegal hoteling is to nip it in the bud. Make sure your building’s rules and guidelines regarding subletting and leasing are unambiguous, and make them clear to prospective buyers.
“Most people don’t read the rules,” cautions Goldberger, the board member, “until after they’re told they’re in violation.” Of course, some do and try to get around them anyway. “We have a group of owners who live overseas, use their apartments as vacation homes, and want to get some financial benefit the rest of the time, says Goldberger. “So we have a process for that. What we don’t want to see is a unit we wrote a one-year lease on coming up for rent again three months later.” But even then, things aren’t necessarily clear cut: “You really can’t prove intent – that the owner did a handshake deal with the tenant,” he continues. “And you don’t want to punish an owner who had a tenant terminate the lease early.”
It’s enough to drive you crazy. Still, making the rules clear is a good start. So is requiring extensive board packages for condos as well as co-ops; they can help weed out buyers who don’t plan to live in their apartments. And never underestimate the value of realtors familiar with your building’s culture: “Before I show an apartment, I vet either the real-estate agent or the prospective buyer,” says veteran New York City broker Gene Vezzani. “If I realize they’re interested in an investment property they can lease short-term in a co-op or condo looking for owner-occupants, I just say, ‘I don’t want to waste your time; that’s not permitted in this building.’”
Make sure your guidelines on guests and subletting are clear and unambiguous.
• Put procedures in place to document suspicious activities and keep them up to date.
• Use private investigators to locate documentation of other residence and surveillance cameras in common areas to document high traffic.
• Use progressive notices to owners/shareholders: first, a cease-and-desist letter from the managing agent, then a letter from the board’s lawyer and then a default notice.
• Begin the process of terminating the shareholder’s proprietary lease (co-ops only).
• Levy fines big enough to hit where it hurts: in the wallet.
• Commit to staying the course: it can be lengthy and expensive, but lax enforcement encourages multiple violations.