In a recent decision, New York's second highest court ruled that the Hotel Des Artistes coop-erative did not have the authority
to impose a 30 percent sublet fee on its shareholders. In Zimiles v. Hotel des Artistes, Inc., the judge required the co-op to return $300,000 in sublet fees collected since 1990. Although the case remains in litigation, it should serve as a warning to all boards that unless they have the proper authorization written into their governing documents, they may be open to challenges on sublet fees, especially if those fees go beyond the usual reasonable amount charged of five to ten percent of the rent.
Sources of Authorization
The board gets its authority to regulate subleasing from the proprietary lease and by-laws. The scope of the board's authority depends on the exact language of the building's documents. It is not enough that either the proprietary lease or the by-laws contain the proper language; both documents must include the right authorizations for the co-op to comply with the court's ruling.
The proprietary lease (usually Paragraph 15) commonly provides that co-op consent to a sublease is subject to such conditions as the board may impose. Twelve years ago, in Zuckerman v. 33072 Owners Corp., the Appellate Division ruled that this broad language in a proprietary lease grants to the board wide-ranging authority to impose a reasonable sublet fee as a condition to consenting to a sublease. What is reasonable, though, depends on what the by-laws say.