Cooperatives Should Obtain Maintenance Guarantees from Third Parties to Facilitate Apartment Sales
In the past, many cooperative apartment Boards approved the sale of an apartment to a buyer with questionable income, when the incoming tenant-shareholder posted a substantial maintenance guaranty. The amount of the guaranty was often equal to six months or a year’s worth of estimated maintenance charges. The Housing Stability and Tenant Protection Act of 2019, passed this June, limits the amount of lease security that a tenant may be required to deposit to one months’ rent. This law effectively bars a Board from requiring a tenant-shareholder to deposit a maintenance guaranty that exceeds one months’ maintenance charges. As a result, Boards that cannot obtain financial protections against a lease default reject the questionable buyer.
How may a Board obtain financial protections so it can approve such a sale? The solution is to obtain a third-party guaranty of the tenant-shareholder’s proprietary lease obligations from a person that is not a member of the tenant-shareholder’s immediate family (who usually has the right to live in the apartment with the tenant-shareholder). The logical party to offer such a guaranty is the selling tenant-shareholder. In addition to obtaining the guaranty, a Board can ask the guarantor to post a security deposit for the guarantor’s obligations. By having the guarantor post a security deposit in the amount of one years’ maintenance, the Board is not violating the new law and is obtaining financial security in the form of an easily collectible fund securing the guarantor’s obligations under the guaranty.