That Vital Co-op Revenue Stream: Sublet Fees
Dec. 14, 2015 — When I applied to sublet an apartment in a co-op recently – something I had never done before – I received a crash course on a little four-letter word that is vital to the health of many co-ops: fees. Specifically, I got schooled on the fees that I, the potential subletter, would pay to the co-op and, far more important, the fees the shareholder would pay to the co-op for the privilege of renting her apartment to me.
Jeremy Bolger is a licensed real estate salesman with Halstead Property who handles sublets and sales at Seward Park co-op, a sprawling, high-rise complex on the Lower East Side of Manhattan that is home to some 5,000 people in 1,728 apartments. At any given time, about 100 of those units – fewer than 10 percent – are occupied by subletters.
Bolger showed me a lovely one-bedroom apartment with a terrace and knockout views of midtown and downtown Manhattan – for about the same rent I’d been paying in Alphabet City.
After I put up a month’s rent to get the listing taken off the market, Bolger emailed me the co-ops’s sublet application. As I read it, my eyes began to bulge. There was a $400 fee payable to the co-op’s management company, a $100 fee payable to the co-op, an $80 fee for each criminal background check, and a $75 fee for each credit report check. There was also a $500 move-in fee and a $500 move-out fee. If my financial condition were deemed satisfactory, I would have to appear in person before the co-op board’s screening committee.
I asked Bolger what would happen to these fees if I were turned down by the board. “The fees are non-refundable,” he replied, “all except the move-in and move-out fee.”
"So you’re saying that I’ve got to pay more than $800 in fees for the privilege of applying for a sublet – with no guarantee that I’ll be approved?”
“That’s right.”
When I told him the fees were a deal-breaker, he countered that he would be willing to reduce his broker’s fee from 15 percent of a year’s rent to 12.5 percent, which would more than cover the application fees. I would still have to take my chances with the board, with no guarantee I would win approval. I decided to roll the dice. Happily, I was approved.
After I’d moved in, I sat down with Seward Park’s property manager, Frank Durant, who told me the non-refundable $800 I’d paid in sublet fees was not unusual in New York co-ops.
“Your fees paid for the clerical work – reviewing the application, setting up the interview, arranging the move-in and move-out, running the credit and criminal background checks, establishing debt-to-credit ratios,” Durant said. “The fees the prospective sub-letter pays basically bring in very little income. The real income comes from fees charged to shareholders.”
Seward Park’s sublet fee structure was revised upward in 2010. Shareholders pay a fee equal to 100 percent of maintenance for the first two years of a sublet; 112.5 percent for the second two years; and 125 percent every year after that. Those fees generate more than $700,000 of the co-op’s annual operating budget of $25 million – not an insignificant contribution. And it certainly puts my $800 in perspective.
“In order for us to maintain the affordability of the co-op,” Durant said, “we look at a lot of way of reducing costs and producing ancillary income.”
As I learned, sublet fees are high on the list.