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CO-OP/CONDO BUYERS

Experts Reply to Board Talk on: Owners Who Rent Out Their Condos

New York City

Nov. 13, 2014Liz R.Insurance Broker writes: We are a condo of 67 units. Lately, buyers seem to be investors who are renting out their units. We have nothing that addresses this situation in our bylaws. We now have 10 of the units rented with no restrictions on time of lease, etc. I understand that if 30 percent of all units are rented, some banks will not approve a mortgage. I also see other pitfalls, and the board is discussing solutions. First, we are trying to get an 80 percent majority vote changed to 66 2/3rds in our bylaws. The more rentals with absentee occupancy, the more problems we seem to have. What are your thoughts, and has anyone confronted this same problem? This will be a hard sell.

Mark B. Levine, RAM, answers: Banks tend to not want to lend toward buildings that are greater than 15 percent investor-owned or subleased. This is because they fear that if tenants don't pay their rent, then unit owners may have an issue paying the common charges, as they were relying on that income to pay for their monthly fees.

The sooner you can get your bylaws amended by the 80 percent that is called for in the document to reflect the change in the sublet policy, the better off you will be. If you wait too long and more than 20 percent of your units are rented out, it is very likely that you will never be able to capture the 80 percent approval vote you need.

If you'd also like to make it less onerous on the owners, you can institute a sublet cap in years (no more than three out of every five years) or three years total, etc. You can also make it a soft-income revenue builder by charging a sublet fee to all unit owners who choose to rent.

If your offering plan holds a provision for a right of first refusal for sales and sublets prior to their implementation, it is a tool you can use to manage the sublets as well.

 

Mark B. Levine is an executive vice president at Excel Bradshaw Management Group.

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