The board of a co-op is required to perform an ongoing balancing act, weighing both the needs of the individual shareholders and the good of the whole. Nowhere is this more apparent than the controversial issue of subletting. While owners feel entitled to rent out their property as need dictates, the board must be concerned with the financial well-being of the building, questions of community, and quality of life. While a "no sublet" policy may create hardship for unit owners, too much undermines the building’s financial viability, establishing and enforcing a fair sublet policy can be crucial to keeping the peace.
Investors aside, people purchasing a co-op know that they are joining a community and expect the shared rights and responsibilities of ownership. "Boards don’t want people buying as investors," says property manager Gerard J. Picaso, president of Gerard J. Picaso Inc., a real estate management firm in Manhattan. "Originally, sublets were used when people went on a sabbatical." When the real estate market crashed in the late eighties, people began subletting apartments because they could not sell them at an acceptable price.
Although the market is robust now, smaller apartments and those in certain areas of Manhattan and the outer boroughs are still selling at a discount. Owners who need to move for professional or personal reasons see subletting as the only way to recoup their investment. Conversely, resident owners are generally concerned that subtenants will pay less heed to issues of security and quality of life. Picaso says, "When you allow a lot of people to sublet, you take that many people out of the process of running the building."
While economic necessity drives a shareholder to sublet his or her apartment, it also encourages a board to deny the practice. Boards may find it difficult shopping around to refinance the buiding’s underlying mortage because banks consider heavily sublet buildings a risk. "Lenders are worst-case scenario thinkers, says Patrick Niland, president of First Funding Commercial Mortgage Brokerage in Manhattan. "They always assume sponsors or subtenants are going to have economic trouble or run-off." A high percentage of non-owner-occupied apartments may dictate what mortgage rate the building can obtain.