Choosing a Coop for Your Next Home? Why to Read the Subletting Clause

A coop may be your most affordable housing option, but the limits on subletting can undercut its value to you.

Sure, a coop sounds like a great financial deal, especially if you’re living in an area where single-family homes are pricey. This particular form of property ownership might allow you to get a more spacious apartment for a lower price than you would pay even for a similarly sized condominium or townhouse. The ameneties—perhaps a fitness center, courtyard, and laundry facilities—are often even comparable.

But before signing on the dotted line, realize that coop ownership really means you are buying into a corporation that owns the building where your home or unit will be located. In that regard, you become just a shareholder in a corporation, who must abide by the board’s rules—including, in many instances, a rule against subletting.

As long as you plan to reside in your coop and don’t mind following rules, living within this ownership structure may suit you fine. But what happens when you decide you no longer want to use the coop as your primary residence and you want to rent it out as an investment property? Or maybe you travel a lot on business, and want to sublet your unit during your absences so as to make money on an otherwise vacant apartment?

In anticipation of such possibilities, be sure to take a good look at the terms of the subletting clause before going any further in your plans to purchase a coop.

Some Coops Prevent Subletting Altogether

This is the worst-case scenario, but it is possible. Coops are not always subject to landlord tenant laws. Coops are like social clubs or country clubs, in that they are free to make their own rules as long as they do not violate equal protection laws. Thus coop owners are free to prohibit rentals entirely.

You may be thinking, “Hey, it’s my home I can do as I please with my property.” But remember, you don’t own “real property.” You own stock, and as a stockholder you must follow the rules or else face fines or even a lawsuit.

Minimum Time for Residential Use of Your Coop Unit

Coops in general like to promote owner occupancy. Most coops therefore require that the owner live in the unit for a minimum amount of time before subletting to a tenant. One to three consecutive years is often required before the coop board will so much as consider a sublet.

“Consider” is the key word here, the coop board being under no obligation to accept a tenant. Even after you have advertised or otherwise found someone who wants to rent your place, that prospective tenant will be required to submit an application to the coop board.

Part of this application is likely to include a complete background check, financial review, and interview before the board. Even if the tenant has a clean background and good financial history, there is no guarantee that the board will accept him or her. Coop boards do not have to provide a reason for their refusal of a tenant and are not required by law (short of cases where they are discriminating based on race, ethnicity, disability, or religion) to approve a tenant who meets the basic entry criteria.

Duration of the Coop Sublet

Coop boards and residents typically want to prevent the disruption to their residential community that can be created by a heavy inflow and outflow of tenants. For the most part, coops prohibit short-term sublets (under a year). Or short-term tenants might be permitted upon special application to the board.

So if you travel a lot on business and want to be able to list your coop as a rental unit on a site like Airbnb, carefully check for such a restriction before purchasing a coop.

Just as the board requires a minimum term for a lease, it will also set a maximum term. Most coop boards say that a tenant can sublet for anywhere between one and three years, after which the board may or may not permit lease renewal. In cases where the board does permit a tenant to reapply to sublet, the tenant will need to submit another application and go through most of the same paperwork as required at the onset of the lease.

Sublet Fees

After you make it through all the steps required to sublet, there will more than likely be fees involved, starting with an application fee. Typically, the coop board will also charge a fee for the privilege of subletting. This amount can be as high as 25% of the monthly rent.

There will also probably be moving charges. Let’s say you decide you want to sell your coop while you still have a tenant. Make sure you give your tenant plenty of advance notice, because if a tenant refuses to leave, you may be forced to take legal action to evict.This will either cost you more money or draw out the length of the selling time.

While it is often possible to sublet a coop, this depends entirely on the rules that apply there. Many coop rules create major obstacles to subletting. If you plan on subletting, or at least want the option to do so in the future or for any length of time, a coop may not be your best choice for a place to live.

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