How to Keep Apartments from Becoming Hotels

The Challenge

One co-op in our portfolio recently confronted and dealt with an apartment being rented out illegally for short-term stays. Staff alerted the property manager that there was unusual activity: people arriving with luggage who would stay a few days to a week, and multiple instances of this over a short period of time. The staff also reported that they had seen the shareholder only a few times since his purchase of the apartment, and that they were told by this shareholder that these guests were visiting relatives. Online research revealed that the apartment was listed on Airbnb at a rate of over $300 per day. Management immediately sent a “cease-and-desist” letter to the shareholder, who denied renting out the apartment. Unauthorized persons continued to show up. Strangers were living in the building without being vetted, and the house rules and proprietary lease were being blatantly violated. The board had done its due diligence – this shareholder had impeccable credentials and had presented very well at the interview.

The Solution

The board ultimately authorized legal action. A private investigator was hired, and he documented strong evidence for a court case. Ultimately, the shareholder, who had no intention of residing there, agreed to sell the apartment before the case went to court.

The Lesson

The board realized there’s tremendous incentive for opportunists to try to cash in by renting their apartments through Airbnb. The board resolved to reduce the possibility of this happening again. With the assistance of management and corporate counsel, new house rules have been adopted clearly defining a sublet, prohibiting short-term rentals, and implementing a fine schedule for non-compliance. New shareholders are required to sign an acknowledgment of the policy as part of the admissions package. Staff has learned to be vigilant and to continue to watch for similar activity.