Proprietary Lease

Definition of "Proprietary lease"

Written by

Adrean Hayashi

Magnum Opus Real Estate

The proprietary lease definition is the binding occupancy agreement between the cooperative corporation and the shareholder to possess a rental unit in a building using cooperative shares.

A proprietary lease resembles rent.

To shed light on the meaning of a proprietary lease, one has to understand first that this is not a real estate purchase. Renting a unit would be a similar concept. 

The proprietary lease is, first of all, a lease. This lease is a contract in itself that is compiled and signed between a corporation and a homebuyer. A homebuyer will receive it who joins a housing cooperative as shares in that corporation. It provides the homebuyer with the right of occupancy for a particular unit by purchasing shares in that corporation and not acquiring actual real estate. The one purchasing shares becomes a member of their housing cooperative. As a result, they become tenants and landlords simultaneously because of their shares. 

The proprietary lease covers the rights to and benefits of a unit.

The parties involved use a proprietary lease instead of a deed. A proprietary lease explains each right and privilege regarding a residential unit. In other words, it determines the relationship between the shareholder and the co-op company.  

Additionally, it covers the terms and conditions of the co-op apartment owner’s residency and occupancy rights; for instance, the shareholder can enjoy such benefits as sublet. Finally, the lease defines charges, the right to mortgage, and the corporation’s right to terminate the lease.

Stock certificates and the lease add up to full-scale investment bonuses.

As we established earlier, people don’t consider co-op apartments real property because the cooperative corporation is the factual owner. In exchange for their investment, shareholders collect stock certificates featuring the number of co-op shares they hold. Besides, they receive the proprietary lease empowering them to reside in the rental unit they “purchased.” Without such a lease, an investor has merely shares in the co-op company and can’t occupy the residence.

Inspect the ‘coops’!

As you’d imagine, the cooperative corporation is entirely indemnified from liabilities, damage, and costs caused by injury to an individual or real estate. Did you know that the lease enables shareholders to go through the books of account at the company’s headquarters? In their turn, the corporation should prepare an accurate financial report yearly that an accredited bookkeeper should also back up.  

Respect the proprietary lease rules!

The proprietary lease states that abusing rules is an act of default. Once the lessee signs the lease, they agree to comply with all property rules. House rules, such as noise and smells containment within the apartment, are the agreement’s essential part. Respecting the rules applies to the subtenants of the lessee too. In other words, lessees shouldn’t make too much noise commotion. Additionally, they should refrain from cooking that emanates smells, escaping into public hallways and stairways. 

Watch out for conflicts with contractors!

There are downsides to buying a co-op unit. The shareholder can quickly lose any dispute with a contractor for a job in their apartment. For instance, a heating contractor comes to the residence but fails to install efficient central heating. Moreover, they send the lessee a bill for $2,000 for labor. 

A conflict of interests emerges for sure. Then, the heating contractor can file a mechanic’s lien. The lien covers the complete building. The coops will automatically pay for the “expenses“ without ever looking into the matter. Now comes the kickback! The corporation will send you the bill peppered with any extra costs. In conclusion, the lessee unquestionably loses any disagreement with a contractor. An appeal or lawsuit might not even be a feasible option.

The proprietary lease sets maintenance services and fees. 

The proprietary lease defines how the corporation handles and imposes maintenance charges. Generally, the agreement declares that the co-op is in charge of building maintenance. Sound condition supervision covers common areas, for example, yards, courts, gardens, boardwalks, sidewalks, flight of stairs, cellars, hallways, elevators, etc. Then, the contract establishes shareholders’ responsibility for their calculated share in special assessments.

Contact local real estate agents to get more information on proprietary leases in your neighborhood!