Is It Time for Your Co-op Board to Adapt to Self Employed Subletters?

But as the global economy continues to adapt to the internet age, more and more people are working for themselves. Freelancers of every stripe — writers, techies, designers, and others — are becoming more diverse, more inventive, and more numerous. Today, more than one in three American workers, some 53 million people, are working for themselves full- or part-time, according to a recent study commissioned by the Freelancers Union.

For co-op boards, this means the old procedures for vetting subletters might need a refresher course. Boards need to realize that a 9-to-5 job and its accompanying W-2 tax form are no longer the gold standard for measuring income. Beyond that, it might be time to consider the idea that a sublet applicant's income is not even the most important consideration.

"In a co-op, the board should be much more focused on whether the potential subletter is going to be a good neighbor, rather than just on their financial situation," says Neil Davidowitz, president of Orsid Realty, a property management firm. "It's not easy. There are services that do various checks in addition to conventional credit and criminal record checks. The board should also call the applicant's previous building and talk to the former landlord, the neighbors, and the staff."

Companies such as Inter-Pro Investigations and Fidelifacts can dig much deeper than traditional background checks. "Some companies offer what's called a media search," says Ian Mayglothling, managing director of the closing department at Douglas Elliman Property Management. "They'll put together a package on anything that's discoverable — newspaper articles, DMV records, voter registration, and social media. It all goes toward painting a picture of the applicant."

Peter von Simson, CEO of Bedford Management, advises boards to require a letter from the self-employed applicant's CPA detailing several years' worth of past income plus a projection of the current year's income. Other property managers and brokers advise that self-employed subletters be required to put up a security deposit equaling several months' maintenance, depending on the degree of fluctuation in the freelancer's annual income.

Ideally, real estate professionals agree, the burden of appraising a potential subletter should be shared by several parties. These include the management company, the broker, the co-op board (which is responsible for the quality of life and the financial stability of the building), and the shareholder (who is ultimately responsible for the monthly maintenance on his or her apartment).

The broker can act as an initial filter. "A lot of boards look to the broker to present applicants who are at least approvable," says Mayglothling of Douglas Elliman. "The broker should know the building and know what sort of person is approvable in that building."

The shareholder also needs to get involved.

"I think it would be a real mistake for a shareholder to rely on the management company or the broker or the board to do all the due diligence," Davidowitz says. "The shareholder should be doing background checks [as well]. The person doing the subletting has the most to lose."

Mayglothling agrees. "The shareholder should be more discerning about vetting subletters than anyone," he says. "That said, the board has the final power and the right to approve or disapprove."