When a New Yorker is interested in acquiring a NYC co-op unit, one of the most common concerns is: what is the sublet policy?
Even though you may have long-term plans to stay, it’s critical that you understand how the subletting policy will impact you personally as a shareholder. Before you decide to invest in a co-op, ask the necessary questions to understand how rigid the policy is.
What Does The Term “Sublet” Mean?
You buy shares in the company that owns the building when you buy a co-op unit. These shares grant you an exclusive lease on your apartment. You have two options if you leave the apartment but keep ownership of your shares:
You have two options if you leave the apartment but keep ownership of your shares: Sublease is just a different name for a sublet.
Why is The Sublease Policy Essential?
You should first be aware of the limitations imposed by the policy on your usage of the unit. Second, you should be aware of the financial implications of subletting the unit. Co-ops’ restrictions on subletting are designed to encourage high owner occupancy and minimal turnover. Although the rule may appear excessive, most buildings and co-op boards believe that shareholders will look after the unit better than tenants.
The Majority of New York City Co-Op Buyers Intend to Live in The Unit Full-time and don’t sublet it. Why should you care, then?
Your use as a resident may not be impacted by the rules, but you have to know the re-sale potential.
Your co-op building’s rules may discourage potential buyers of your unit depending on how strictly they are imposed.
Additionally, if you are subletting, many co-ops charge you extra fees. These costs can easily mount up. A co-op with reduced costs is obviously preferred if there’s a chance you’ll sublet.
Because sublet restrictions limit the capacity of shareholders to sublease the unit, co-ops are typically not seen as desirable rental properties for investment buyers. Additionally, if you keep ownership of your shares, the additional costs offset any possible earnings or cost savings.
What Aspects Of a Sublet’s Policy Should You Seek Clarification About?
- Minimum Number of Occupants Necessary: In many co-op buildings, shareholders must occupy the unit for a predetermined period of time before they are permitted to sublet the apartment. Shareholders are frequently required to occupy the apartment for one to three years before being permitted to rent.
- Minimum Sublet Term: Co-ops demand minimum sublet durations of at least 1 year in order to discourage short-term rentals. Some cooperatives permit a two-year period.
- Maximum Subletting Allowance For a Shareholder: Most co-ops establish limits over time. In most co-ops, you are only permitted to sublet for two of every five years as long as you have met the minimum residency requirement. You will be among the fortunate if you come across a building with no limits.
- Board approval: The right to sublet your flat is typically subject to board approval, much like when you purchase a co-op. As a result, it takes longer to rent out your property while you wait for permission, and there is no assurance the board will accept the applicant.
What Are Typical Sublet Costs?
- Percentage of Monthly Maintenance: An ongoing increase in your monthly maintenance constitutes the most typical sublet charge. This sublet surcharge varies for each co-op and, on average, can account for 10% to 30% of your monthly maintenance.
- Fixed Fee Per Number of Shares Owned: While this structure is less prevalent, shareholders are charged a set fee. The extra expense is computed by multiplying the number of shares by a co-op-determined fee. The shareholder pays this cost upfront, and it is charged to the sublet each year.
- A Higher Fee Every Year of Subletting: If your co-operative has a cap on the number of years you can sublet, you might be subject to a maintenance fee that changes each year. For instance, you might have to pay 10% of yearly maintenance in the first year, 15% of annual maintenance in the second year, and so forth with further rises in upcoming years.
The details of each co-op in New York City will vary. If you ask the appropriate questions, you will get the right information you need to choose a building with a sublease policy that suits your requirements.