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 ârents outâ your own apartment back to you.
Thatâs 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 donât pay the maintenance or the assessments or violate one of the co-op managementâs 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 âdeed?â Your proprietary lease probably has a language requiring you to get the âtransfer of ownershipâ 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 apartmentâs management. So before you transfer your shares and proprietary lease to a trust for yourself or add a name to the âdeed,â you will need the bankâs approval. Otherwise, the bank that holds your mortgage may have the right to accelerate the mortgage and foreclose on your apartment even though youâre 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 âlandlord,â the coop management. But thatâs how apartment ownership is set up in New York City, so weâve 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 âdeedâ 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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Albert Goodwin is a great New York estate lawyer, helped me every step of the way.
