Co-op Boards Must Treat All Pieds-a-Terre Equally

In Animal Farm, his parody of Soviet totalitarianism, George Orwell created a skewed utopia where all the farm animals were equal — but some were more equal than others.

That very situation played out recently when a co-op purchaser was told by the board that it does not allow shareholders to use their apartments as pieds-a-terre. But once his purchase was approved, the shareholder learned that some of his neighbors were using their apartments as pieds-a-terre. Confused, he asked Brick Underground: "Is the board just looking the other way? Could the other pieds-a-terre be grandfathered in?"

The answer is that co-op boards are required to treat all shareholders equally — and they cannot treat some more equally than others.

"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 at Belkin Burden Goldman.

In the real world, however, it can be challenging to keep track of how all shareholders are using their units."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, managing partner at the law firm Woods Lonergan. "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, Woods 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 addition to the desirability of owner occupancy, there are 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%," says Deanna Kory, a broker with Corcoran, noting that the cherished co-op and condo tax abatement is available only to people who use their apartment as their primary residence and who live in a building that pays its staff prevailing wages. To that end, some co-ops make efforts to dissuade shareholders from using their units as pieds-à-terre. 

Woods adds: "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. 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 viable option for many owners." 

Other techniques 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.