Q&A: An Extra Apartment

An Extra Apartment

Q I bought an apartment for my aging father in my building. He has since passed away and I've been renting out the apartment, with board approval. I am one of 3 or 4 people in the building who keep an extra apartment. I am retired and depend on the income of that apartment. Our rule has been that as long as you reside in the building, you can continue to rent out an additional apartment that you own. However you can only rent out your own apartment for 18 months, and then you must return or sell. I am on the board, but voting on this issue was dominated by board members who don't like this rule. Am I grandfathered in or do I have any senior status exemption?

—Playing by the Rules

A “When a purchaser buys a unit in a condominium, there is a legal presumption that he or she is able to rent the property and that the owner enjoys the 'full bundle or property rights,' meaning the right to hold, lease, mortgage and convey the property just like any other owner of property,” says attorney Jennifer Loheac of the community association law firm of Becker & Poliakoff in Morristown. “This is why any restriction on leasing is, in fact, stated in the 'restriction section' of most master deeds. Absent a restriction on the ability to lease any unit owner is free to lease as he or she sees fit as a matter of law. Nonetheless, courts have long recognized that owners in a statutorily-created condominium do not necessarily have the same vested rights as other kinds of fee simple owners. Invariably, when a person buys into a condominium, it is with the understanding he is giving up a few property rights to adhere to a communal scheme. So what does this all mean?

“It means that owners should expect that communities may legally create and enforce reasonable use and lease restrictions, such as limiting the number of overall rentals in the community or determining that owners may rent only once in a given year, to discourage transient rentals and more. Some communities have created amendments to the master deed that seek to altogether restrict rentals with the only exceptions being for hardship, such as inability to sell a home, or service in the military. A restriction is considered reasonable if it is not arbitrary, capricious or violative of public policy, meaning that the restriction cannot offend due process or create classes of owners—some that may rent units and others who may not. Courts will frequently uphold restrictions that may frustrate any one owner’s purpose when weighed against the benefit conferred to the owners collectively.

“Notwithstanding the association’s right to implement use and leasing restrictions, pursuant to the Condominium Act in New Jersey, 'restrictions or limitations on the use, occupancy, transfer, leasing or other disposition of any unit…and limitations upon the use of common elements' must be set forth in the recorded master deed. These restrictions cannot be drafted by rule, resolution or even, arguably, by amendment to the bylaws because the bylaws do not trump the master deed, which addresses property rights and restrictions. If the use and occupancy restrictions are not set forth in the master deed or by proper amendment to the master deed, the restrictions will not be held to be enforceable against unit owners.

“Relating to your father’s apartment, the first place to begin the inquiry is to check the master deed and the restrictions set forth therein. Chances are you will see language stating that no one may rent less than the whole unit at a time and for not less than six months. You will probably see language binding the owner to make sure the lease is subject to all provisions of the master deed. You will not likely see the kind of restrictions you mention below. If the board adopted an amendment that only people who live in the building may rent a unit for 18 months and then must sell, and the amendment was validly passed ( by the owners at a duly held meeting), then it is a legitimate restriction. If it is merely a rule or resolution that the board adopted, then the rule does not have the power to frustrate your ability to continue to rent your father’s unit. My guess is that the association does not really have an interest in prohibiting everyone’s ability to rent. (There are many communities that would rather ensure payment of maintenance fees than risk abandoned non-paying units.) Rather, the concern is likely one of transient tenants who come and go and do not have a true interest in residential community living. The board may also be concerned about the percentage of overall rentals in the building becoming significant, such that it could jeopardize financing in light of federal financing requirements. There are other ways to achieve these same objectives without necessarily banning or overly restricting yours (or anyone else’s ability) to rent their units.

“As to grandfathering and senior status exemption, these would not apply here. Note: in answering this it was assumed that the apartment was part of a condominium, if not, you would look to the proprietary lease relating to leasing restrictions. In this case, I would try to work with the co-op board to consider exceptions, particularly if there are only four other people in the building who would even be eligible to rent the second unit. It is difficult to see the hardship presented by allowing these resident owners to rent their second units indefinitely. If the purpose was to have the owner in residence and available to monitor the tenant, this is certainly achieved, whether you rent your unit for only 18 months or indefinitely.”

Related Articles

Show Me the Money

Collections, Foreclosure & Evictions

Rules of Disclosure

Buying, Selling — and Telling

Co-op vs. Condo

Different Models of Ownership