What is a Proprietary Lease – Everything You Need to Know

By: ROS Team

Ney York city is disproportionately in favor of co-ops. There are almost 70% more co-op units than condos. Co-op buyers are not considered the actual owners of a property, rather a shareholders of a corporation that owns the property. The shareholding is governed by a legal document which is called a proprietary lease. In this blog, we will discuss everything which a buyer must know about the proprietary lease, in detail.

What is a Proprietary Lease?

Primary Documents which are of prime importance for a shareholder in the co-op are proprietary lease and by-laws.

Bylaws are a set of rules according to which the coop is run. It contains how the property will be managed and who will become a member of the board. How the elections will be held and how long will be the duration. Bylaws also contain house rules which are binding upon the residents of the co-op and must be strictly observed by tenants.

The other document is the proprietary lease which is the signed agreement between the buyer and the seller and explains the nature of their mutual relationship.

As Shareholders are not direct owners of the holding rather own them indirectly through a corporation which makes them immune to the New York City rent regulation laws. To resolve this issue, the Proprietary Lease, as well as New York State business laws for corporations, are installed which not only defines the relation among them but also works for the benefit of the shareholders.

Co-ops and Proprietary Leases:

Primarily, living buildings in New York are divided between co-ops and condos. Unlike condos, co-ops are not owned by the buyers. When someone buys a co-op, he is not buying the property but the shares of a property. He becomes the shareholder and is called the tenant of the building. The further operation is run according to a legal document which is called a proprietary lease. Shares are directly proportional to the coops, larger, larger the co-op, the bigger will be the shares.

Upon buying the building, your layers are supposed to brief you about the “offering plan”. The document is voluminous almost counting goes to a hundred pages and contains all the information in it.

If you are already a tenant in the coop, your layer must have a copy of it and more likely that he had made you acquaintance with all the concerning points in the document.

What are the Responsibilities of the Corporation According to the Proprietary Lease?

The proprietary leases register the responsibilities of both the shareholder as well as of the organizations/co-op.

Corporations work for the welfare of their residents and maintain a profile to see their tenants with the same eye. No one is spared for any loss incurred on any other tenant of the organization.

One of the prime responsibilities of the organization is to make sure that all the shareholders are complying with the rules laid in the proprietary lease. It is regulated through random inspections and briefing guidelines by members f boards for each shareholder.

If upon inspection, irregularities are observed, members are supposed to inform the tenant to rectify the issue. If there is any leakage or destruction in the apartment, the tenant is liable to fix them. Co-ops may inspect the apartments when they feel like it.

If you are living in the upper apartment then it is your responsibility to not give any chance of complaint to the one who is living lower. If a complaint is received against you for bathroom leakage or any other issue, for that matter. The corporation may inspect your building and instruct you to mend that. A shareholder is liable to compensate for the losses in case of loss is inflicted upon the lower apartment. Therefore, it is advised to have insurance for the co-ops.

What is the Shareholders’ Responsibility According to the Proprietary Lease?

The proprietary lease confers equal responsibilities upon the shareholders. They are bound to operate the property as per the set rules in the agreement. Maintenance is considered the chief responsibility of a shareholder and also to keep the apartment in fine shape.

Renovation is one area where remains a certain amount of ambiguity. In principle, if a shareholder wants to renovate the house or alter the design. He is supposed to take written permission. If the renovation may cause structural changes in the building then the shareholder has to ink down another agreement with the corporation. The shareholder might feel cumbersome at entering into an additional agreement but this practice is to protect the rights of both parties.

The proprietary lease document might appear as a lengthy draft of rules. But it does a good job of laying down the responsibilities and rights of every individual involved in the business of buying and selling. It has worked out the optimum set of rules to secure the interest of the shareholders as well as of corporations.

It is highly recommended to the buyers to skim through the pages of a proprietary lease in detail and to consult the layers if something is confusing. Or in case you already own a co-op, revisiting the pages of your agreement might sound a good idea.

FAQs

How is a Proprietary Lease Different from a Regular Lease?

A proprietary lease is different from a regular lease in that it is specific to cooperative housing arrangements. Unlike a regular lease, which typically gives the tenant the right to occupy a property for a specified period of time, a proprietary lease grants the tenant the right to occupy a specific unit in a co-op building for as long as they own shares in the co-op.

Who Uses a Proprietary Lease?

The proprietary lease is a legal agreement between the co-op corporation and the resident, granting the resident the right to occupy a specific unit or apartment.

What Benefits do Shares in a Co-Op Confer on Shareholders?

Shares in a co-op confer shareholder’s ownership in the cooperative corporation that owns the entire building or property.

What are Proprietary Rights on Property?

Proprietary Rights on property refer to a person’s legal ownership and control over a specific property or asset.

What are the Benefits of a Proprietary Lease for Tenants?

A proprietary lease can provide tenants with a sense of security and stability, as it grants them the right to occupy their unit for as long as they own shares in the co-op. It can also provide greater control over the building and its management, as tenants have a say in decisions made by the co-op board.

What are the Responsibilities of a Tenant Under a Proprietary Lease?

The responsibilities of a tenant under a proprietary lease typically include paying monthly maintenance fees, complying with building rules and regulations, and maintaining the unit in good condition. The lease may also require the tenant to participate in building meetings and decisions.

What are the Rights of a Tenant Under a Proprietary Lease?

The rights of a tenant under a proprietary lease typically include the right to occupy the unit, the right to use building amenities and common areas, and the right to participate in building decisions through the co-op board.

How is a Proprietary Lease Terminated?

A proprietary lease can be terminated if the tenant sells their shares in the co-op or violates the terms of the lease, such as by failing to pay maintenance fees or violating building rules and regulations. In some cases, the co-op board may also have the right to terminate a lease for other reasons, such as if the building is being sold or demolished.