Living Side By Side
Fitting Renters Into the Equation
In today’s difficult economic times, more and more co-op and condo owners and boards are constantly on the lookout for new ways to improve their bottom line. It’s one of the many reasons that more and more renters are moving into co-op and condo buildings, mixing and mingling with unit owners and shareholders in a ratio unmatched in recent years.
“Since there is a glut of newly-built condo buildings, many have switched to rental so they can fill up the units,” says Greg Carlson, president of Carlson Realty in Queens and executive director of the Federation of New York Housing Cooperatives & Condominiums (FNYHC). “If the building is already a condo, the sponsor may rent out the existing units.”
Today’s circumstances also mean boards may be faced with new situations and have to take a creative approach to filling units or working with existing residents. “Any time you’re in an economic downturn, a board is going to have a dilemma,” says attorney Robert Braverman of Braverman and Associates in Manhattan.
He cites an example of a young couple who have purchased a unit, then find themselves wanting to start a family. In normal times, they would simply sell their unit or shares and move on. These days, though, if they bought at the height of the market, they may not be able to get their money back and in turn, may decide to rent the apartment out to cover the cost of their mortgage. In a co-op, they would have to approach the board to ask their permission to rent. In the past, that would be something “the board would usually be reluctant to do,” Braverman says, but in these cases, where families are simply getting stuck, “Boards are more likely to have sentiment for these decisions” and may give the young couple the OK to rent out their apartment.
“When the economy is booming, it’s very rare that you would see that type of behavior,” Braverman says.
Where Challenges Arise
For a unit owner or shareholder who has invested hundreds of thousands and perhaps even millions of dollars in their dream home, the prospect of a renter moving in next door can be a bit disconcerting. “People spending a lot of money to own their own unit want to live with others who care about their property just as much as they do,” says attorney Adam Leitman Bailey of Adam Leitman Bailey PC in Manhattan. “Owners have more of an interest in their building. Ownership gives you great pride, and you’re much more likely to care what your neighbors think.”
Although no doubt the majority of renters have the best of intentions, the impetus to maintain and care for a unit that they may never see again six months or a year down the road is not a strong one. Renters “are transient,” says Carlson, “and do not care as much as an owner would about the building.” That can create what Carlson calls “quality of life issues” for neighbors and fellow residents.
Braverman agrees. “As a general matter, very often renters do not have the same kind of pride of ownership as a shareholder or unit owner might,” he says. “They don’t treat the property with the same amount of respect. I’ve seen instances where damage is caused to the common areas of a building, or where tenants have engaged in objectionable conduct.” This happens particularly in condos “where renting is not nearly as regulated as in co-ops.”
Another issue that can arise within renter-heavy buildings is the “loss of a feeling of community,” Braverman says. If a building is filled with individuals and families who come and go, that sense of teamwork and commitment to building the best living environment possible can deteriorate rapidly.
Seemingly smaller issues like noise also can grow with the presence of renters. “This is especially true with weekend renters,” Bailey says. “If people are coming in to New York City for the weekend, they’re going to party.”
In some buildings, unit owners and shareholders are realizing that they can make far more money renting out their apartments for week-long visits or weekend packages than if they simply sign a 12-month lease with a nice family from the suburbs.
According to many in the industry, this idea of weekend renters has become a real source of trouble and conflict between permanent and non-permanent residents. Braverman has seen “a number of instances where fractional ownership or timeshare entities have exacerbated the problems, with two or three transient occupants [in an apartment] in any given month,” he says.
Addressing the Issues
Ad hoc bed-and-breakfast schemes aside, there is of course no reason that co-op and condo owners cannot co-exist peacefully and happily with renters for neighbors. It simply means that the board has to be prepared and have the tools in place to try and prevent problems before they start. Simply by virtue of how they are structured legally, co-ops have a head start on this.
“Co-ops are regulated more,” says Braverman. “In every proprietary lease I’ve seen, there is no right to sublet without consent of the board.” The distinguishing feature of condo ownership, he adds, “is the right to freely do what you want with the unit .”
When a renter moves in, he or she must follow any and all of the bylaws and house rules that are in place. “In any sublet or rental situation, occupancy is subject to the rules and regulations of the building in addition to the provisions of the lease,” Braverman says.
And those rules and regulations are where boards need to make sure they are covered, says Bailey. In a lot of instances, if a building “had better bylaws, the problems could have stopped” before they started, he adds. “Every co-op and condo needs to have bylaws that are strong. “
Some of the items Bailey suggests addressing include bylaws that require at least a one year minimum for renting. “Those who don’t have a one year minimum should get ready for a lot of short-term tenancy,” he says. Bylaws also could require application approval or regulate the times a person can move in, “so it’s not 9 a.m. on a Monday morning when the elevators are being used by residents.” The bylaws might also dictate that the person violating those rules and regulations will have to pay attorney fees in any dispute that arises, thus lessening the chance of a law suit should situations go bad.
It is also important to put as much of the “what if” onus on the unit owner as possible. The rent check comes to the unit owner or shareholder, and they are earning money from the endeavor—therefore they also have responsibility for what their tenant does. “You might want to have a form requiring the unit owner to agree to pay for any loss or damage inflicted on the common areas,” Bailey says, and if the bylaws have not been written with these details in place, it is also possible to “make up for what’s not in the bylaws in the applications,” he continues.
“A bad tenant is the responsibility of the unit owner,” says Braverman. “With a barking dog, for example, if asked to get involved we will usually write letters to the unit owner and tenant. The association or corporation has rights against both. Directing the issue toward the unit owners, though, tends to be most effective because they want the rental income to continue.”
In terms of interacting with building staff and management, tenants for the most part would turn to their landlord, a.k.a.—the unit manager—as their intermediary with a few exceptions. “It would depend on the management contract, but in general, the manager would handle the day-to-day concerns of all residents in the condo building,” says Carlson. “Unless specified, the manager would not handle any leasing or rent.”
If a problem with the unit arises, though, tenants can turn to management or maintenance for assistance. If a pipe bursts, for example, the building will need to respond to the problem since it affects more than simply the tenant, says Braverman. If, however, the resident’s refrigerator breaks down in the unit, that’s an issue for the unit owner to fix. It is not the responsibility of the building staff.
Bad for the Reputation?
While renting out a few units here and there to ease the burdens of the bottom line can be both sensible and effective, the question remains: is it bad in the long run for a co-op or condo building to allow renters?
There can be some issues with allowing too many renters, says Carlson. “Lenders are making the situation tougher and tougher for loans in a condo. One special item is the amount of rentals in a particular building.” Too high a ratio could throw a monkey wrench in financing options for residents or prospective residents.
There is also the matter of what prospective buyers or shareholders look for in a building. “Owners want to move into buildings that are owner occupied,” Bailey says. “If a whole building is rental, people don’t want to move in.”
It becomes vital, then, for boards to maintain the proper balance for their buildings, allowing enough rentals to ease the financial burdens but ensuring that future buyers are not put off. With the right mix, buyers and renters alike can share in the joy of a New York address, co-existing peacefully as the best of neighbors.
Liz Lent is a freelance writer, teacher and a frequent contributor to The Cooperator.