Our new co-op building says no pieds-à-terre, but we know there are some. How can we do this too?
A co-op board applying different sets of rules to different shareholders could find itself in legal trouble.
We’re buying in a co-op building that says it does not allow pieds-à-terre, but we know some shareholders use their apartments this way, and we would like the option as well. Is the board just looking the other way? Could the other pieds-à-terre be grandfathered in? What's the deal here?
Co-ops can impose restrictions that make it difficult to use an apartment as a pied-à-terre, but it can also be challenging to keep track of how every shareholder is using their units, our experts say.
"Many co-op boards have a strong preference for owner-occupied units and may make efforts to advise prospective purchasers of their no pied-à-terre policy in the building," says James Woods, Esq., managing partner at Woods Lonergan (a Brick Underground sponsor). "Once someone has been approved and living in the building, it tends to be a different situation, particularly when they are a tenant in good standing for an extended period."
It can be challenging for a co-op to monitor the comings and goings of every shareholder, particularly in larger buildings, he points out. There's also the question of how a pied-à-terre is to be defined: Buildings may have different requirements for how many nights per week a shareholder would have to spend in their apartment for it to be considered a primary residence.
Particularly since the onset of the pandemic, and the vast number of companies offering employees the ability to work remotely, more residents may be spending longer periods of time in other locations. What was once a second home may become more like a primary one, and the co-op becomes a de facto pied-à-terre. In this sense, these shareholders may be getting "grandfathered in" despite the co-op's policies.
In these cases, "the policy seems not to affect people have lived in the co-op for a while, but it does affect the people who are newly buying into the building," says Deanna Kory, a broker with Corcoran. "Sellers are often frustrated by this policy as well."
That said, a co-op board applying different sets of rules to different shareholders could find itself in legal trouble.
"If the board is aware of such existing pied-à-terre use and does nothing to stop it, but prohibits new shareholders from using their apartments in the same way, the board could be accused of disparate treatment and discrimination against the new shareholders, in violation of state law," says Aaron Shmulewitz, an attorney with Belkin Burden Goldman LLP.
There are also some compelling financial reasons for a co-op to keep track of how much time shareholders are in residence.
"The building needs to keep track of all the primary residents because real estate taxes are lower for them by 17 percent," Kory says. "Their monthly payments are a bit lower, and usually in buildings that do not allow second homes, maintenance is inclusive of that."
To that end, some co-ops make efforts to dissuade shareholders from using their units as pieds-à-terre.
"While the co-op cannot expressly promulgate rules that regulate which months or weeks out of the year that the owner occupies the apartment, it may impose restrictions that make it challenging to use the apartment as a pied-à-terre," Woods says. "For example, many co-ops have strict limitations on rentals and subleasing, so when the shareholder is not using the apartment, it must remain vacant, making a pied-à-terre a less financially available option for many owners."
Other methods include limiting amenities access to full-time residents, and turning down would-be buyers who the board is aware plan to use the apartment as a pied-à-terre, Woods adds.
Still, there will be shareholders whose usage of the apartment changes over time—and there's not a lot the board can do to stop them.
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