Will co-ops relax restrictions on rentals to compete better with condos?
Co-op rules vary, so work with a broker who can direct you to a building that allows rentals.
The pandemic has made it clear how much easier it is to deal with condos vs. co-ops (for example, condos are much easier to rent out if I need to get out of the city). I've heard some co-ops are starting to change their policies, giving more flexibility in terms of pricing as well as policies like subletting. Is this true? How can I find a co-op that isn't super strict on these issues?
It's true that some co-op buildings allow rentals, but there isn't an major evolution happening for co-ops because of the pandemic: Each co-op tends to develop its own rules and culture over time, so you'll need to consider buildings on a case-by-case basis to find the right match for you, our experts say.
Condo boards do tend to be more permissive than co-op boards, making it easier to buy, sell, and sublet condos. Condos also usually require less money down than co-ops do, but the caveat is that condos are also often pricier. (See our explainer on the difference between these apartment types for a more thorough rundown.)
The pandemic has upended NYC real estate—and life—in a number of unprecedented ways, but co-op boards are still largely operating the same way as before.
"In terms of pricing, most boards go with prevailing market conditions, financial qualifications of the applicant, and the physical condition of the apartment," says Gordon Roberts, a broker at Sotheby's International Realty. "They won't dictate individual asking prices when it comes times to sell. Price is ultimately market-driven for both co-ops and condos."
And when it comes to subletting, most co-ops are rather strict, a policy our experts predict is unlikely to change, even as the pandemic motivates many New Yorkers to leave the city for temporary, less densely-populated areas.
"Most co-ops discourage subletting, and I wouldn't expect that to change any time soon," Roberts says. "Many co-op dwellers want the built-in security of knowing that their neighbors are fellow shareholders. Renters come with potential headaches."
That said, restrictions can vary quite a bit from building to building, and co-op rules can change when new board members are elected.
"Co-op boards sometimes will bend on some of their rental restrictions, but typically that means they allow rentals for a year or two ," says Deanna Kory, a broker with Corcoran. "This happens especially in less prime locations, or in buildings where people are having difficulty keeping up with payments."
There's no way to filter for these types of buildings, she says, but an experienced broker can help you identify co-ops that will be the best fit for you.
"There are some cooperatives that have adopted a right of first refusal in lieu of a right to approve or reject subtenants or purchasers," says Jeffrey Reich, a partner in the law firm of Schwartz Sladkus Reich Greenberg Atlas. "Since this is a selling point, one would expect a seller to highlight this fact in their advertising and marketing material. Brokers that specialize in specific neighborhoods may know if any cooperatives with condominium-like rules are available in the area that they cover."
However, buyers should not assume that buying a condo guarantees total freedom when it comes to subletting,
"Many people buy condos with a mistaken notion that they can rent willy-nilly and they don’t need approval," Kory says. "This is not so. Approval is needed and it’s a similar process, in many cases, to a co-op board application without the interview."
Both co-op and condo boards, particularly in buildings with lower price points and in less than prime locations, may loosen their restrictions in times of upheaval, Kory adds. But difficult economic circumstances can also create the opposite effect: boards that get stricter in order to protect the building financially.
"While the [reader] does have a point with respect to the freedom that condominiums offer in leasing out one’s apartment, cooperatives are in a better position to collect monthly charges during a financial downturn and may therefore may prove to be a good—or a better—investment in this challenging economy," Reich says.
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