Anyone who lives in a city that is a popular tourist destination has likely played host to a procession of family, friends, friends-of-family, and other assorted houseguests over the years. It's something of a running joke in places like New York City, where even a tiny, bare-bones hotel room is likely to cost more than $200 per night.
To address this—and even capitalize on it—some New Yorkers are participating in 'apartment exchanges,' trading nights in their apartment for nights in other apartments in other destination cities like Chicago, San Francisco, or Miami. Some even do it internationally, swapping flats with Londoners or Parisians instead of springing for a pricey hotel room in those cities.
Apartment exchanges—short-term rentals to bypass hotel rentals—have been going on in New York as long as people have owned apartments. The advent of the Internet, with its plethora of websites like VRBO.com and Craigslist, has made finding potential renters easier. And the grim economic climate provides plenty of incentive to make a few bucks when possible. “New York is a popular destination, and the hotels are very expensive,” explains Geoffrey Mazel, a partner with the Manhattan law firm of Hankin & Mazel PLLC.
While the idea of trading homes for a week or two is a pretty sweet deal for apartment owners, it poses some serious issues for building boards and neighbors regarding security, property values, and zoning laws, just to name a few. And not to mention that despite the economic allure, even if boards are tempted to turn a blind eye towards the practice of short-term rentals, it’s actually against state law.
So, while there is isn't exactly an epidemic of illegal short-term rentals going on in the five boroughs, the practice most certainly does exist. “In the condo world, it’s becoming more common,” says Mazel. “In the co-op world, it’s still pretty rare.”
Whether such deals are in fact uncommon, or whether they just go undetected is debatable. Apartment-swaps are often done quietly, with nobody besides the swappers any the wiser. If an Upper East Side stockbroker swaps addresses with a banker from Montmartre for a long weekend, it behooves both parties to keep it on the down-low. “I don’t see it happening frequently where it’s above-board,” says Eric Goidel, a partner with the Manhattan-based law firm of Borah Goldstein Altschuler Nahins & Goidel PC.
“Usually it’s done through word-of-mouth, or else on Craigslist,” Mazel says. “It’s more frequent than I’ve seen it in the past.”
Who Goes There?
The loophole that allows owners to explain the presence of strangers in their building is the 'guest' provision in the building's governing documents. “Most proprietary leases allow you to have a guest for up to 30 days at a time,” Mazel explains, “but if you do it too often, and if you don’t live there at the time of the visit, the co-op might bring proceedings.”
In this case, co-ops and condos are two different worlds. Condos, which are real property, are harder to regulate when it comes to 'guests' coming and going. But that doesn’t mean they don’t have rules. “If you keep doing it, putting people in one week at a time, one after the other, you’ll likely be violating some part of the house rules,” says Goidel.
“There’s a big difference [between co-ops and condos],” Mazel says. “The proprietary lease of a co-op says that the unit is for non-commercial use only. If you’re renting it, then, you’re violating the proprietary lease.”
Goidel points out a further distinction. “The proprietary lease allows you to have guests for 30 days without board approval. Even then, if you don’t have physical possession of the property, it’s considered a sublet.”
In a condo, that status might trigger the board's right of first refusal - and there's the rub: along with getting caught with your hand in this particular cookie jar can be prohibitively expensive.
“If it's done in violation of a proprietary lease or condo by-laws, the board can assess a fine,” Mazel says. Co-ops can go further if the subletting shareholder is a repeat offender, or if their 'guests' have resulted in any sort of loss or disruption to the building, moving to terminate the proprietary lease and in effect evicting the shareholder from the cooperative. The board can also sue for damages, including legal fees. The cost of getting caught, then, can vastly outweigh revenue brought in by rentals.
“Many condo documents and most co-op documents prohibit short-term leases,” Goidel says. And, indeed, leases of less than 30 days have been illegal in the City of New York since May, 2011, when a bill passed by the State Assembly went into effect. “Legislation prohibits leases of less than 30 days, so people wouldn’t turn their apartments into B&B’s,” says Goidel.
For the sake of argument, let's say you surreptitiously 'loaned' your apartment to a very nice-seeming European couple who were visiting relatives in the city for a few weeks while you just happened to be out of town on business. Obviously you trusted these people enough to allow them to occupy your home in your absence, so what's the big deal?
The majority of co-op and condo owners oppose allowing short-term leases. If they didn’t, the State Assembly would not have been moved to draft legislation against it in the first place, much less pass that legislation. As State Senator and co-sponsor Liz Krueger pointed out to the press shortly before the measure was passed, "It's a complaint-driven system, and if nobody makes a complaint there's no issue.”
So why the complaints? Think of short-term sublets like noise. It’s one thing when one of your neighbors has a loud party once or twice a year, quite another when he does it every Friday and Saturday night. It’s owners who abuse the system that the legislators had in mind when drafting the bill. And there are good reasons for this.
“You don’t want to have a transient building that seems more like a hotel,” Goidel says. Part of the reason co-ops and condos function so efficiently is that the owners all share the property, and know they will do so for the long haul, so they tend to be more committed to things like upkeep and good neighbor relations than a renter – especially a very short-term renter – might. After all, if you rent a hotel room in a city you are unlikely to visit again for years, why not make as much noise as you want? Or as Goidel puts it, “You don’t want people there who don’t have a vested interest in taking care of the property.”
Building residents also aren't crazy about the idea of having a parade of unknown people traipsing through their lobby and corridors. What if the short-term guest is a criminal? A drug addict? An al Qaeda operative? While no sane co-op or condo owner would allow someone to stay in their home without vetting them somehow, unless that owner also happens to work for the CIA or FBI, it's impossible to know who it is you're letting in.
“Renting or short-term subletting brings an unknown element to the building,” Mazel says. “Co-ops want stability to add to the quality of life, and apartment exchanges or short-term rentals are very undesirable for the residents of the building.”
To make it less appealing for residents toying with the idea of renting their units to actually do so, “A board can put language in their governing documents requiring all guests to be declared. The doorman or super or whoever watches the front door can discern who is supposed to come in,” Mazel says. “It’s a security issue.”
Then there are more practical matters that residents with dollar-signs in their eyes may not pause to consider. “If you trade one person in the apartment for ten people, those ten people are going to utilize services to a greater extent,”says Goidel. “That can overtax the building's facilities.”
Can it Work?
Valid concerns notwithstanding, there are actually reasons for boards to look the other way for some short-term rentals, particularly in the case of even exchanges—situations when both owner and renter have the same incentive to be on their best behavior.
If handled in a consistent manner with clear rules and limits, subletting in the short term need not always be a bad thing. The co-op can make out from the deal. “Some buildings charge for the privilege of subletting,” notes TJ Magoulas of All Area Realty Services. Why not just do it all in the open, so the whole cooperative can benefit? The short-term sublet, Magoulas argues, is better for the building in some ways than a long-term one, especially if it’s an apartment exchange. “It might be even easier, because there’s no furniture to move in and out,” he notes.
“Boards should create a policy for it,” Magoulas says, that regulates the process. This transparency could potentially help everyone in the building. The problem with it now is that it’s done in the dark. After all, at the end of the day, it’s the owner who is on the hook for what happens in her apartment. If she gets caught doing an apartment exchange, if her renters trash the building or make too much noise, she is responsible. Why not just make it legal, and regulate it more?
In any event, the law doesn’t seem to have much of an effect on the actual practice of apartment exchanges; it’s just driven them further underground.
Greg Olear is a freelance writer and a frequent contributor to The Cooperator.