Last updated on June 22, 2023

What is a Proprietary Lease in New York?

A proprietary lease is a legal document that establishes the rights and responsibilities of co-op shareholders in New York City. It outlines the terms by which a tenant can occupy their unit and the terms of their agreement with the co-op board. In essence, a proprietary lease is a hybrid between a lease and a deed, in which the shareholder is granted ownership rights to their unit, but must abide by certain rules and regulations established by the co-op board. 

Before buying a co-op apartment in New York, it is important to speak with a skilled NYC real estate attorney to help you understand your rights and responsibilities as a buyer. A top-rated attorney may be able to provide the legal advice you need during the co-op board interview and answer any questions regarding your co-op purchase

Contact Sishodia PLLC today to speak with an experienced NYC real estate attorney. 

Co-ops and Proprietary Leases

When it comes to owning a co-op apartment, it’s important to note that it’s not the same as owning a condo apartment or a single-family home. The key difference is that you’re not actually purchasing “real property.” Rather, you’re buying shares in a corporation, which is determined by the size of your co-op unit. Essentially, you become a shareholder in the cooperative.

How A Proprietary Lease Works

Most shareholders receive specific rights, such as the right to sublet a unit in a Shareholders in cooperative apartment buildings are granted specific rights, such as the ability to sublet their units, as well as obligations outlined in the proprietary lease document. This lease contains vital information about how the cooperative functions and ensures that the building is maintained for the benefit of all residents.

The proprietary lease typically includes provisions for monthly maintenance payments, monthly bills, repair and maintenance procedures, compliance with laws, apartment inspections, and tips for maintaining the apartment. The lease also outlines the responsibilities of the shareholder, such as adhering to maintenance rules and caring for building items like windows and elevators.

As the apartment owner, the shareholder is responsible for maintaining their unit and seeking permission from the cooperative before making any renovations. These rules ensure that only licensed and insured professionals work within the building, protecting both the cooperative and its shareholders

Before signing a proprietary lease agreement, it’s crucial to review it carefully to fully understand the cooperative’s duties and the shareholder’s responsibilities. It’s worth noting that cooperative apartments do not confer ownership to occupants, meaning that shareholders do not receive a title or deed.

The legal framework surrounding proprietary leases in New York is complex and stems from various sources, including statutes, case law, and the lease agreements themselves. The most important statute that governs proprietary leases is the New York Business Corporation Law (BCL). Section 501 of the BCL permits the creation of cooperative apartments, which are registered corporations that own the building and offer proprietary leases to tenants.

The BCL also sets forth the responsibilities and rights of shareholders in cooperative apartments, including the right to transfer their shares and the obligation to pay maintenance fees. Additionally, the BCL requires the cooperative board to conduct annual meetings and manage the corporation’s affairs in the best interests of the shareholders.

Another important legal source for proprietary leases is case law. Court decisions have clarified and interpreted the BCL’s provisions for cooperative apartments. For example, the case of Levandusky v. One Fifth Avenue Apt. Corp. established that cooperative board decisions can only be overturned by a court if they are arbitrary, capricious, or illegal.

Finally, lease agreements themselves play a crucial role in defining the terms and conditions of proprietary leases. These agreements specify the rights and responsibilities of the tenant-shareholders, including their obligations to pay maintenance fees, comply with building rules, and maintain their units. The agreements may also contain provisions for alterations, subleasing, and dispute resolution.

Key Features of a Proprietary Lease

Ownership

Ownership is a crucial aspect of understanding what a proprietary lease is in New York. When purchasing a cooperative apartment in New York, the buyer does not own the physical unit. Instead, they own shares in the cooperative corporation that owns the building.

Duration

In a proprietary lease agreement in New York, the duration refers to the length of the tenant’s occupancy. The duration of a proprietary lease agreement is typically medium to long-term. Co-op boards in New York usually extend the lease term when it reaches 25-30 years prior to expiration. Proprietary Leases that expire in less than thirty years may cause problems with lenders. 

Maintenance and Repairs

One of the most important aspects of a proprietary lease in New York is the extent to which maintenance and repairs are the responsibility of the tenant or the landlord. When a tenant signs a proprietary lease, they typically agree to take care of routine maintenance activities within their own unit, such as changing light bulbs, replacing air filters, and keeping the space clean and orderly. 

Subletting

Subletting is a common practice in New York City, where space is at a premium and rents are high. A proprietary lease grants the lessee the right to sublet their apartment or commercial space, subject to certain conditions. Your coop purchase real estate attorney shall review sublet policy and advice on the terms during the due diligence process before the Contract signing. 

Termination

The section on Termination in a proprietary lease is a critical element that defines the consequences of ending a lease agreement. Before entering into a lease agreement, tenants and landlords must understand the conditions under which the lease can be terminated. A lease agreement can be terminated for different reasons, including the expiration of the lease, a violation of the lease terms by the tenant, or the landlord’s decision not to renew the lease.

A proprietary lease outlines the rights and responsibilities of a tenant in a cooperative building in New York City. It provides the tenant with a degree of control over their living situation that is not typically available in a rental arrangement and ensures that everyone in the building is subject to the same rules and regulations.

However, disputes can arise, and legal assistance may be necessary to ensure that all parties are treated fairly and in accordance with the law. Overall, proprietary leases are an important feature of New York’s unique real estate landscape and play a vital role in ensuring that residents have access to safe, affordable, and comfortable housing.

Speaking to an experienced New York real estate attorney about proprietary leases can help you understand your rights and make sure that they are protected. At Sishodia PLLC, our team of skilled real estate lawyers may be able to provide the legal advice you need when purchasing co-op apartments. Contact us today at (833) 616-4646. to schedule a consultation. 

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