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Prevent Problems Before they Start Avoiding Subletting Nightmares

Maria and her husband Jim own a suburban condo, but are moving out of the area because of Jim's new job. The couple love their home however, and are hoping one day that they will relocate back to the area. Alex loves his two-bedroom urban co-op, but he'll be on the road for his job for the next year and doesn't want to lose his residence either.

In both situations, renting their apartments out to a sub-tenant seems like the ideal solution for both parties—the renters can obtain temporary housing, and the owner/shareholders won't lose their home.

Profit vs. Pain

It's not uncommon for co-op and/or condo owners to rent their apartments to sub-tenants as a way of making money on a space they won't be occupying for an extended period of time. Common as it is however, subletting isn't necessarily a welcome tradition among boards and managers, for whom renters sometimes represent headaches rather than solutions.

"There is both legitimacy and exaggeration in the effects of leasing," says Jerome Liebowitz of Liebowitz & Jurecky Esqs. in Fort Lee.

"Leasing is typically frowned upon because of the perception that lessees cannot be expected to take the same pride in a community or building as an owner would," Liebowitz continues."Where there are a large percentage of leased units, the absence of resident owners may decrease the number of owners who are willing to run for boards or become involved in committees.That said, many communities and buildings that have very few leased units suffer from apathy and lack of involvement."

Gary Rosenberg, of the Law Offices of Gary Rosenberg in Florham Park, agrees that there are no association benefits to subletting.

"In a condo, you can't control anything other than the length of the lease—usually the minimum of six months to a year—and you have to rely on the unit owners to sublet to reliable people. In a co-op and condo association, the more owners that live there compared to renters the better. The association is then able to maintain a nice living style, and the person who lives there takes better care of the unit than the tenant does. Ultimately, you are trying to build a close-knit community."

The Right Kind of People

Like many things, the rules for subletting differ for condos and co-ops. "In co-ops, subletting is controlled bya provision of the proprietary lease," says Liebowitz. "The standard provision relating to subletting states that 'the shareholder may not sublet the apartment without the written consent of the board of directors.'The lease further provides that if the board refuses to grant consent, 'The shareholder can attempt to gain consent from at least two thirds of the issued and outstanding shares of the co-opat a meeting called for that purpose.' This is not an easy task, and such a challenge is rarely attempted."

In co-ops, subletting is regulated and the incoming tenant must pass muster with the board.

"They can look into several things to determine if the tenant is satisfactory, including the length of rental time, the financial responsibilities of the subtenant and even their type of career," says Rosenberg, stressing that even subtenants can't be turned away for discriminatory reasons such as race, creed or color.

"There is a state law thatcould have a substantial impact on subletting a co-op apartment," says Liebowitz. "It is NJS 46:8D-13.1.A brief [explanation is] this law states that a co-op must permit a sublet if the shareholder cannot sell the apartment for the amount of the purchase price plus improvements.The law sets forth specific requirements that must be met by the shareholder to qualify to sublet.The major exclusion from this law is a co-op that has never allowed subletting."

Andrew Edson of Suffolk County in New York sublets his co-op and says that it's of paramount importance that the creditworthiness of the tenant be checked, rechecked and validated. Unfortunately, his advice comes as a result of a bad personal experience with a sub-tenant.

"Our horrible experience came from a less-than-thorough credit check by my realtor at the time," says Edson. "It took over 10 months to evict this tenant who not only did not pay his rent, but trashed the unit and had to be evicted by a gun-toting U.S. marshal.And the courts? Forget it.Landlord-tenant courts usually favor the tenant—even deadbeat ones, as was case with mine.Because of that episode, we're extremely careful to makes sure our tenants pass muster not only with the co-op board, but with my wife and me. After all, it's our home and our investment."

Rules of Engagement

Edson's co-op is somewhat unusual for allowing subleasing at all—most co-ops either have elaborate rules and limitations on the practice, or forbid it outright. In a condo association, subletting cannot be forbidden, but there is often a maximum length of time—usually six months to a year—that the unit owner can have a tenant before either returning to occupy the unit or selling it. The reasoning behind limiting the amount of time an owner can rent out his or her unit is the same as that used by co-op boards: a high number of transient renters tends to change the image of an association.

"In a condo or HOA the master deed is the keygoverning document," says Liebowitz. "I have not seen a master deed at a condo that prohibits subletting.There are however some administrative rules in effect at condos, usually requiring some basic information about the proposed subtenant. It's usuallythe absence of language prohibiting subletting that permits it, however some condo master deeds and public offeringstatements contain language authorizing the practice.This was done by the sponsor to encourage sales to investors."

Liebowitz also says that there's a trend among condos—mostly in New York City, but in a few other places as well—to prohibit subletting."This is largely because the resident unit owners (as opposed to absentee investor owners) are unhappy with the large numbers of renters and the turnover of renters, and in some case the behavior of the sub-tenants," he says.

Changing a sublet policy in either a co-op or condo association isn't exactly easy. "To change the lease period you would need a vote, depending on what your master deed mentions," says Rosenberg. "If you have a 12-month lease minimum and you want to reduce that to six months, you have to amend the master deed, which requires anywhere from two-thirds to three-fourths of the membership—and that's very difficult to obtain. In a co-op, you can change the requirements by a vote of the board unless there's a specific requirement in the governing documents, which would still require a significant vote to change it."

Making it Work

When it comes to subletting, it's important for clear, fair rules to be established, followed and enforced. First, it's important that the sub-tenants know that they are tenants with landlords, and although they can use the association amenities, there is a landlord with whom they must communicate and respond to.

"The landlord is the owner of the condominium or cooperative unit," says Liebowitz. "This is party to whom rent is paid.Again, the lease can and should be made subject to the governing documents and rules and regulations of the association or cooperative corporation."

Although rules are written to be followed, there's always going to be a sneaky shareholder or owner who tries to pull a fast one. "Theissue of subtenant misbehavior is not universal and is often—but not always—exaggerated," says Liebowitz. "The truth be told, many shareholders violate rules and regulations, are inconsiderate of their neighbors and cause problems that demand enforcement." So it's not fair to pillory sub-tenants as the sole perpetrators of rule-breaking.

Consider, for example, a scenario in which a condo owner sublets for less than two weeks when the master deed says that a sublet must be not less than six months, but not more than two years.

"The board can go after the unit owner and take them to court for violating the association's governing documents," says Norman L. Zlotnick of Mairone Biel Zlotnick & Feinberg PA in Atlantic City. "If it's a situation where eviction is a possibility and the unit owner refuses to [cooperate,] the board can get a power of attorney to carry out the eviction of the tenant—in addition to having the unit owner face sanctions. The restriction on time is meant for the association's [full-time] residents—you don't want people coming and going all the time."

To make the sublet process easier, Zlotnick recommends that all unit owners take part in enforcing the rules passed by their boards, "So all residents know that the policy is going to be carried out."

"Don't hesitate to take appropriate action when you find a particular unit owner might be violating the leasing policy," he continues. "[An association] can go downhill very quickly if indiscriminate leasing is tolerated in a building that shouldn't have significant leasing going on."

But for all the words of caution, there most certainly are responsible, upstanding, first-rate tenants, and it's important to treat all residents in one's building or HOA with the same courtesy and respect that a fully-vested unit owner or shareholder would receive. That respect should go both ways as well; sub-tenants should be willing to work at making their presence in the community an asset rather than a liability.

"A shortage of volunteers affects all communities and buildings," says Liebowitz. "If a less-than-welcoming attitude is continually portrayed to lessees, they may become what they are expected to be; second-class citizens.Lessees should be encouraged to volunteer and assist with projects. Once lessees are entered into the community database, they should receive notices about community and building events, and they should be encouraged to report issues involving the association or cooperative. Accepting help from lessees gives them a sense of pride in their home and community or building."

As with so many things, says Liebowitz, communication is essential.

"Lessees are not always kept informed by the owner/landlord," he says. "Copies of rules and regulations and other critical association or cooperative documents should be provided by management to lessees.It is impossible to expect someone to abide by a rule they've never been made aware of.Even the most informed unit owners receive constant reminders about their responsibilities."

Two-Way Streets

Everyone is looking for that perfect sub-tenant, and Edson says that the best sub-tenant (to a landlord) is the one that does not call or complain and pays their monthly rent in full and on time.

"But, when things go wrong or break, the tenant will call," says Edson. "I can remember barging on the Burgundy Canal in France one summer—pre-BlackBerry—when I fielded a call on the barge from my tenant. An air conditioner was broken. What to do? I told the tenant to get another, have it installed and then deduct that expense from the next month's bill. This was certainly cheaper than buying an A/C unit in Dijon and having it shipped back to the U.S.A."

Liebowitz says that if a co-op wants to allow subletting, he recommends the following:"Place a 'cap' on the percentage of apartments that can be sublet at any one time—say 20 percent or less, for example. Interview every applicant; have the co-op attorney prepare a mandatory rider to the sublease with a copy of the rules and regulations attached; consider a security deposit to be paid to the co-op by the shareholder; and require insurance certificates with a prepaid receipt for payment of premium."

So if your building or community allows owners to sublet their units, understanding and following the subletting rules, choosing a subtenant wisely by checking references and backgrounds, enforcing the rules and communicating on a regular basis are vital components to making the system work for, and not against, your HOA.

Lisa Iannucci is a freelance writer, published author and mother of three living in Poughkeepsie, New York.

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Comments

  • PLease review the sublet statute again. The only way that the renting of units due to inability to sell applies is if the coop forbids renting - which only applies if the coop has NEVER allowed renting. However, if the proprietary lease permits renting, and/or if renting has occurred, an owner can rent at will subject to the "reasonable" terms and conditions the board imposes on subletting units. The term "reasonable" turns up a few times in the statute: 46:8D-13.1. Many coops illegally restrict subletting because this law has been misinterpreted.