What is a Proprietary Lease? The proprietary lease is a document that determines the landlord-tenant relationship between you and the management and the board of the corporation that owns your apartment building.
If you own an apartment in a place like New York City, it is most likely a co-op. The way you own an apartment as a co-op is two-step:
- you own shares of the corporation that owns the building and
- the corporation “rents out” your own apartment back to you.
That’s right, the co-op building in which you live rents out your apartment. To you.
Proprietary Lease Means You’re at the Mercy of the Board…
Unfortunately for you, you are in many ways essentially a tenant in your own apartment. If you don’t pay the maintenance or the assessments or violate one of the co-op management’s restrictive rules, the proprietary lease gives the management of the co-op the right to evict you. So not only are you in many ways a tenant in your own apartment, the fact that you have a proprietary lease means that you can also be evicted from your own apartment.
Want to transfer your apartment to a trust or put one of your children on the “deed?” Your proprietary lease probably has a language requiring you to get the “transfer of ownership” approved by the management and the board.
… and the Bank
This is in addition to the fact that you will also need the transfer to the trust approved by the mortgage company. The way mortgages work in proprietary leases is that the bank that holds the mortgage has a mortgage lien on your shares of the corporation that owns your building, recorded in a central mortgage system and recorded with your apartment’s management. So before you transfer your shares and proprietary lease to a trust for yourself or add a name to the “deed,” you will need the bank’s approval. Otherwise, the bank that holds your mortgage may have the right to accelerate the mortgage and foreclose on your apartment even though you’re making mortgage payments.
What is a proprietary lease? It’s a way for you to get the worst of both worlds in a co-op with. You can both be foreclosed on by the mortgage company and be evicted by your “landlord,” the coop management. But that’s how apartment ownership is set up in New York City, so we’ve all learned to live with it.
Problems with the Board or the Bank? Give me a Call
If you are having issues with your coop management or board, or are considering adding a name to a “deed” of a co-op, or transferring a co-op apartment to a trust, or have questions about your proprietary lease, you can give me a call. My name is Albert Goodwin, and I have been handling proprietary lease issues for over a decade. You can give me a call at (212) 233-1233.
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