Q. How much influence does a co-op board have over which tenants a holder of unsold shares (HUS) can rent their units to? Can a board enact a bylaw requiring board review and approval of tenants, or set specific financial requirements they must meet? 

                                  —Seeking Clarification

A. “Co-op boards frequently raise concerns about how to manage rental activity by Holders of Unsold Shares (HUS), especially as it relates to their rental practices and how they may impact the character or stability of the building,” says Marc Schneider, CEO and managing partner of Schneider Buchel LLP, a law firm representing community associations throughout NY State. 

 When it comes to setting certain financial criteria, Schneider notes, boards must understand the law in order to avoid illegal discrimination and potential liability. “First, under New York State and New York City law, ‘lawful source of income’is a protected class. That means a co-op, including the HUS who is renting their units, cannot create policies or governing document provisions that single out Section 8 applicants, for example, impose additional approval requirements that apply only to them, or make it such that they will essentially be prohibited from renting an apartment. If this was done, it would be considered discrimination that would subject the Board and HUS to liability (which could include personal liability).

 “That said, boards are fully entitled to enforce their proprietary lease, house rules, and any obligations. All tenants, including those of a HUS, must adhere to those rules and governing document provisions, and the co-op still has the normal enforcement tools. While a board typically can’t deny a HUS the right to rent their apartment, they can impose reasonable neutral, uniformly applied policies that govern the conduct of all tenants in the building as long as those rules apply equally to every resident situation. Note, however, there are certain things that cannot be done to a HUS (depending on what is in the Offering Plan and governing document provisions regarding the HUS’ rights), so you should consult with your building’s attorneys before you enact or change any rules which will affect the HUS.

 “If a HUS rents to tenants who violate building rules or create disturbances, the board can take action the same way it would with any other shareholder’s tenant, including issuing default notices or seeking legal remedies if necessary against both the subtenant and the HUS. What the board cannot do is regulate or restrict rentals based on the tenant’s participation in a government assistance program.”