a Reasonable Polic

"It’s usually in the best interest of a property that subletting is allowed within reason but held to a minimum," suggests Cohen. "Policies can be unique and creative, depending on the needs of the individual building."

Attorney Douglas Heller, a partner at the Manhattan law firm Friedman, Krauss & Zlotolow, which specializes in co-op, condo and real estate law says, "The first thing to consider when determining sublet policy is the proprietary lease." He continues, "The courts look very closely at the language of the co-op documents." Sometimes, the proprietary lease will categorically deny subletting, but more likely it gives the board the right to set reasonable standards and procedures. If policy is not set in concordance with the proprietary lease, it can be subject to challenge later on.

"If you are consistent, the board has a wide range of policies they can set," says attorney Alan Fried, a partner at the Manhattan law firm Schwarzfeld, Ganfer & Shore, who handles co-op work and commercial litigation. "But they must adhere to the policy and fee structure as set out in the lease, or it can come back to haunt you."

A board can not refuse an application based on unlawful discrimination (race, religion, and in New York–occupation or sexual preference, etc.), act in bad faith by treating one shareholder differently from others, or engage in self-dealing (i.e. vote from the self interest of a board member).

"One legal reason to deny a sublet petition is when the bank says you’ve got too many tenants," says Heller. In addition, a board can deny an application based on bad references, inadequate financial means or an intended violation of house rules such as a "no pet" clause. Each board has to decide how much they choose to learn about a prospective subtenant.

According to Helene Rabinovitz, board president at a 37-unit co-op on the Upper West Side, "We do ask to see a curriculum vitae and meet with a prospective subtenant because our basic issue is to keep the building a community. We could be living with this person for the next three years." Rabinovitz adds that, in her experience, subtenants are just as respectful of the property and quality of life as owners. Sometimes, subtenants eventually become owners, and the sublet period is like living together before marriage.

In order to keep sublets within an acceptable range to the banks, most boards will enforce term limits. For example, the sublet cannot be for less than one year or more than two. Another formula may allow an owner to sublet for two years out of a five year period. Some buildings will require that an owner have occupied the apartment for a certain number of years before being eligible to sublet. In addition, boards can set certain criteria such as professional emergency or financial hardship as requirements for sublet approval.

Ideally, a board needs to set a policy that is stringent enough to protect the building’s interests, while not being so strict that it discourages subletting completely. Additionally, attorneys caution boards to check the corporation documents before putting any charges or policies into effect, otherwise the fee can be voided if the owner or subtenant contests in court.

Appropriate Sublet Fees

The application fee charged should compensate the building corporation for the time spent administering the sublet process. Other charges must cover any possible damage to common areas as a result of the moves in and out. A sublet fee charged either annually or monthly to the shareholder communicates that this is a temporary situation and ensures that the owner either resume occupancy at some time or sell the apartment. One way to discourage long-term subletting, is to require that the application be renewed each year with an escalating fee structure in place.

Cohen recommends setting the sublet fee per share. "A flat rate is inequitable," he says. "You need to take into consideration rent collected. There is a lot of difference in the share relationship between a studio and a three-bedroom." Doubling the fee for each year a sublet continues discourages long-term renting. "If they need to sublet for more than three years," says Rabinovitz, "they need to put the apartment up for sale."

All-in-all, a creative, and flexible, sublet policy can alleviate hardship for individual shareholders, while protecting the interests of the majority. In addition, when monitored carefully, sublets can generate capital for a building without undermining its mortgage viability. And that looks good on the balance sheet.