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26 May 2017
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Subletting Your Co-op

New Yorkers frequently question whether they are allowed to sublet their apartment, for reasons ranging from financial hardship to overseas assignments. The answer depends on whether you are a co-op shareholder or condo unit owner. Condo residents have more freedom to sublet, since they own their property outright. However, complications arise for co-ops due to their complex nature. Co-op residents are shareholders, and shareholders do not own their unit – they own shares, which grant them the right to occupy the unit. Co-op boards put each potential resident through an invasive vetting process, so you can imagine they are likely more conservative with their subletting policies.  However, co-op boards need to be willing to permit their shareholders to sublet their unit when necessary.

Ultimately, it is the co-op board’s decision whether to approve subletting, and the parameter of the terms. The board can restrict how long a shareholder can sublet, who can be a subtenant, impose fees and surcharges, and even deny subletting completely. However, these policies (especially terms relating to time constraints and surcharges) must be clearly stated in the proprietary lease. The board is barred from imposing additional subletting rules that are not already listed in the lease (see DeSoignies v. Cornasesk House Tenants’ Corp.) and from creating unreasonable restrictions, such as charging excessive fees (see Bailey v. 800 Grand Concourse). However, most of the co-op board’s decisions can be justified using the business judgment rule, which has the power to protect all reasonable decisions in regard to subletting. Therefore, boards have a wide range of flexibility when determining how stringent the terms should be. For instance, every co-op board can calculate surcharges using a formula of their choosing, which is usually a percentage of the maintenance fee. If the board wants to amend the terms of the lease to impose greater limitations on subletting units, the board must hold a shareholder meeting and obtain a supermajority – two-thirds vote – in favor of the change.

Co-op boards look for potential shareholders who will have a long-term interest in the building and are able to pay bills and maintenance fees; hence their reluctance to approve subletting. So what should you expect when subletting your co-op? Your board will probably have a set of policies that need to be strictly adhered to in order to avoid breaching the proprietary lease. A breach could lead to termination of the lease and forfeiture of all shares. Co-op boards sometimes permit shareholders to sublet their space after they have lived in the building for a certain number of years, but every co-op is different and so are the proprietary leases. Your board can also limit how many years each subtenant can lease the apartment. Your board will also likely require your potential tenant to go through an interview process similar to the one you went through. This normally requires a co-op board package, including a history of the individual’s financial history, business and personal references, tax returns etc. These requirements are effective ways for the board to maintain control, but also meet the needs of shareholders.

A common issue that arises is who is responsible for damages from a subtenant, the shareholder or the corporation? The burden of repairs should be stated in the proprietary lease and any other governing documents of the building. Typically, if the damage is to the structural integrity of the apartment or building (ceiling, wall, or floor), negatively impacts the habitability of the apartment, and/or is covered by the co-op’s insurance, it will be the co-op’s responsibility to make the repair. If the corporation makes the repair, but the damage is due to the shareholder’s negligence, the board can file a negligence claim to recoup any damages. If any fittings, fixtures, interiors are damaged, repair costs usually fall on the shareholder.

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