Habitat Staff in Co-op/Condo Buyers
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Q. Do I have the right to sublet my co-op?
A. You may. It depends on your proprietary lease. The decision in the 2005 case DeSoignies v. Cornasesk House Tenants' Corp. stated that a New York City co-op board could not impose subletting rules that weren't provided for in the proprietary lease.
That decision further stated that the board's new rules limiting the amount of time one could sublet and imposing a surcharge constituted an impermissible de facto amendment to the proprietary lease, something that requires shareholder approval.
Q. What are some reasons that co-op boards may dislike sublets?
A. Many feel it gives buildings an air of transience, with renters who care less than owners about upkeep (though this may be overstated — many rental buildings are luxurious and well-kept). Boards may also dislike the lack of control, since if there are problems with the rental tenant, boards have to make certain that the non-resident shareholder deals with them. Boards also worry that banks may not grant or refinance individual or underlying mortgages if a large percentage of the apartments, about 40 percent or more, are rental.
Q. I know I can't legally sublease my co-op without the board's approval. What's the worst that can happen if I do?
A. In a worst-case scenario, you can have your proprietary lease terminated and your shares forfeited back to the co-op — and not just for subletting without approval but for simply for not following the formal approval process, which can be considered a breach of your lease.
Q. What if I've been subletting with permission for years, and the board changes the rules to limit subletting? Is my situation grandfathered?
A. No. In the case noted above, the plaintiff DeSoignies for at least 25 years routinely sought and received approval from the board. Then the board, in 2002, adopted new subletting rules. In this case, the shareholder even had a 1972 letter from the board stating that shareholders "are allowed to sublet unconditionally their apartment(s) for the duration of their ownership." But the court ruled that this letter conflicted with the proprietary lease, which gave the board "no limitation on the right . . . to grant or withhold consent, for any reason or for no reason, to a subletting" (unless, as the caveat always goes, the board is breaching its fiduciary duty or engaged in self-dealing).
Q. Can a board impose time limits and surcharges on subletting?
A. Not if the right to do so isn't spelled out in the proprietary lease. In the case above, the board tried to restrict subletting to two of every four years to impose a 10 percent surcharge on every sublet. But the proprietary lease did not specify that the board could do that unless a supermajority of shareholders voted to amend the lease in that way.
Q. If a sublet fee is imposed, is there any limit to what it can be?
A. More or less; the higher the fee, the greater the chance of accusations of gouging. In the case Bailey vs. 800 Grand Concourse, a Bronx shareholder was having financial difficulties. The board approved a sublet, with the caveat that Bailey pay a 30 percent fee up front. Although he paid it, the amount was apparently too high; trapped by the high fee and high mortgage costs, Bailey fell behind in his mortgage and the bank foreclosed. Furious, he sued the board, claiming the sublet fee was illegal. He won the suit, and the co-op had to compensate him for lost equity.
Q. Do I have any options if the co-op board turns down my sublease request?
A. You may. Check your proprietary lease. The one in the case above allowed any shareholder whose application had been denied the right to obtain sublet approval by seeking the consent of "lessees owning at least 65 percent of the then issued shares of the lessor."
Q. In this economic climate, some boards are loosening their sublet policies to avoid shareholders going bankrupt, which can severely affect a building's finances. What kinds of things are they doing, which I might suggest to my board?
A. Ways to amend sublet policies without opening the floodgates for subletting include phasing it in slowly. Boards might set a minimum time that shareholders must live in the building before they can sublet, and limit the number of years a sublet can last — two years in any five-year period, for example. Boards can also limit the number of years a unit can be sublet and then insist that a shareholder move back into the apartment or sell it.
Q. Do some boards have a hardship policy?
A. Yes. For instance, a board may allow subletting if a shareholder is posted overseas for an assignment and is going to be gone for one to two years. Boards can consider allowing shareholders who are having a difficult time paying their maintenance to sublet while they get their financial house in order.
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