No-Tell Hotel

For several years now, condominiums have been gaining favor over cooperatives among New York City apartment hunters and developers. Condos offer more freedom, the reasoning has gone, fewer restrictions, fewer rules, and a reassuring sense of owning a piece of physical property rather than part of a paper corporation.

But anyone who thinks that condos come without rules and restrictions needs to think again. There’s a tidy illustration of this fact unfolding now in a condo on Manhattan’s Upper West Side, where a resident’s practice of renting his apartment out to a string of “transient” visitors has the condo’s board fearful that the building could turn into a “no-tell condo hotel.”

“There’s a unit-owner who appears to be living much of the time somewhere else in a second home,” says Gerry Fifer, an attorney who serves as president of the eight-story, 32-unit building that dates from the early 20th century. The building converted from rental to condo in the mid-1980s.

“While he’s away, he rents his apartment for a very short time – a holiday, a weekend. Other unit-owners have complained about strangers coming and going. It’s possibly undermining the security of the building. We don’t know how many keys are out there or who has them.”

Fifer, who has served on the condo board for 16 years and as its president since 2002, adds that there are annoyances other than compromised building security. Short-term visitors tend not to know how to dispose of trash properly, for instance, or how to recycle. The front door locks have had to be replaced several times because visitors didn’t know how to use the keys and ended up trying to force the locks.

“We haven’t had any rowdy guests yet,” she adds, “but that’s a possibility. The situation’s too unknown and too uncontrollable. You’re increasing the chance that something undesirable is going to happen.”

Given the state of the global economy, the demand for short-term accommodations in New York is not likely to slacken anytime soon. In particular, Europeans continue to flock to the city, drawn by the ever-weakening dollar and the abundant bargains it affords on everything from clothing to computers.

Fifer points out that subtenants are not forbidden outright. But turning an apartment into a hotel is a clear violation of her condo’s bylaws, which state: “No transient occupant other than a permitted guest may be accommodated [in a unit].”

The board’s only other control is the right of first-refusal for potential subtenants. If the board rebuffs a unit-owner’s proposed subtenant, it must then lease the unit or cover the owner’s loss of income from the aborted sublease. But the offending owner has never even offered the board the chance to refuse or approve any of his guests.

One solution would be to amend the bylaws. Yet Fifer says the condo’s board is averse to doing this because it’s a “long, laborious process” and it requires approval by a two-thirds “super-majority” of the unit-owners.

Instead, the board instructed the property manager, Ricqy Cruz of Tudor Realty, to send a letter to the resident outlining the board’s concerns. “We sent him a letter in August,” says Cruz, “and he responded with a phone call indicating that he’s not in violation.”

Next step: call your lawyer. “The condo’s attorney has sent him a notice to cure the violation by removing the illegal subtenants or submitting a lease package,” says Cruz. A lease package is an application requesting board approval of a subtenant. The unit-owner has not yet responded to the attorney’s letter.

There is another option. “Depending on what the bylaws say, the board could seek a court order preventing the owner from leasing his unit to anyone,” says attorney Steven Sladkus, a partner at Wolf Haldenstein Adler Freeman & Herz who specializes in co-op and condo law but is not connected with the case. “What he’s doing is a breach of contract.”

And let’s not forget the tax angle. Last summer, a New York City businessman named Raziel Ofer pleaded guilty to grand larceny for failing to report $1.4 million in state sales taxes after subletting numerous apartments as hotel rooms. Ofer faces up to $1.89 million in back taxes, interest, penalties, and a maximum of 25 years in prison.

As a sign of just how much the condo landscape is changing – and just how distasteful short-term visitors are to many condo owners – some of the city’s condos have gone back to the old way co-ops tried to fight illegal sublets. Instead of placing a maximum stay on potential subtenants or forbidding them outright, some condos are demanding an extended minimum stay, sometimes of a year or more.

“That’s a very interesting change,” says Fifer, the board president. “With a minimum stay, you don’t have to argue. It’s an attempt by these new condos to get more stability in their building.”

In the end, the moral of this tale of the No-Tell Condo Hotel may be that city life is full of rules, no matter where you live. “More and more condos are enacting rules that bring them closer to co-op status – in terms of rules affecting sales, leasing, pets,” says Sladkus, the attorney. “And a lot of people don’t like it.”

“Many people buy condos because there’s less restriction on how they can use their property,” adds Fifer. “But many people don’t understand that even though they own their unit, they’re still subject to rules. People have to realize there are bylaws in a condo. People can’t just do whatever they want.”