Reining in (Short-Term) Rentals

Some shareholders in cooperatives and unit-owners in condominiums think that a short-term rental (usually three to five days) is a good idea because it helps defray living expenses. But there are all sorts of dangers in such a situation, including damage to the building and lawsuits against the board. Boards must be aggressive when confronting those who insist on sharing their apartments for short-term stays. There’s a security risk to both the host and the other residents in the building when a stranger shows up with a suitcase and moves into a building for a night, a week, or longer. If the “guest” turns out to be a criminal or a psychopath, the residents who are robbed, beaten, or raped will sue the board, claiming that the board failed to maintain a safe building.

Owners who share apartments are probably violating the co-op’s proprietary lease or the condo’s bylaws. If the guest doesn’t leave, neither the board nor the apartment owner would be able to terminate the “guest’s” right to remain in the apartment. Courts tend to favor the rights of “tenants” over the “landlord,” and the court would probably decide in favor of the person living in the apartment, regardless of status. In fact, if anything goes wrong in the building because of an apartment-sharing situation, the board will be blamed, and could possibly be sued. So here are some steps to consider taking if your board is facing this issue:

Remove the incentive to rent. You could change a cooperative’s proprietary lease or a condominium’s bylaws to provide that, if the resident has a paying “guest,” the resident is required to give the proceeds to the board. This removes the financial incentive to rent. It may be nearly impossible to evict a resident who breaks the rules, but suing to recover the funds the resident received from the “guest” may be the most efficient way of dealing with this problem.

Enact a Permission to Enter (PTE) procedure. This controls who can use the apartment for a short term. The first step of a PTE Policy is for the board to inform owners about the hazards of short-term stays, and the reasons for using PTE. Such actions violate:

•    the bylaws, which preclude “transient occupancy,”
•    New York City’s Zoning Code because the apartment is being used as a hotel room,
•    the building’s certificate of occupancy, which does not permit short-term, hotel-type use of the apartments,
•    New York State law prohibiting the use of apartments as hotel rooms.

In addition, it:

•    improperly circumvents the right of first refusal of the condominium board, or the approval rights of the cooperative board,
•    may result in residents being charged the higher Commercial Transfer Tax when they sell,
•    is a potential violation of the mortgage on the apartment in the event that the owner has one.

Any person visiting or staying in an apartment would be required to comply with the PTE procedure. Building staff – the eyes and ears of the board – would be instructed to vigilantly enforce it. Impose fines on anyone who has broken the rules. Notify residents that the board will levy fines for violations of the lease or bylaws: $1,000 for the first offense; $2,500 for the second; and $5,000 for the third. Each night that the short-term tenants remains in the unit would be considered a separate offense.

Notify the appropriate parties. Finally, in order to protect all of the lawful residents, when the board or the managing agent learns of a short-term stay, which is technically called a commercial use of a residential unit, the agent should notify the appropriate federal, city, and state officials and the holder of any mortgage on the unit so that one or all of them can take action.