Anyone who lives in a city—or across a river from one—that is a popular tourist destination has likely played host to a procession of family, friends, friends-of-family, and other assorted houseguests over the years. To address this (and sometimes make a little money off their unit) some New Jerseyans are participating in 'apartment exchanges'—trading nights in their condo for nights in other places and destination cities like Chicago, San Francisco, or Miami. Some even do it internationally, swapping flats with Londoners or Parisians instead of springing for a pricey hotel room in those cities.
Incentives …and Objectives
While the idea of trading homes for a week or two is a pretty sweet deal for apartment owners, it poses some issues for building boards and neighbors regarding security, property values, and zoning laws, just to name a few.
Apartment exchanges—short-term rentals to bypass hotel rentals—have been going on as long as people have owned apartments. The advent of the Internet, with its plethora of websites like VRBO.com and Craigslist, has made finding potential renters easier. And the grim economic climate provides plenty of incentive to make a few bucks when possible. “New York is a popular destination, and the hotels are very expensive,” explains Geoffrey Mazel, a member of the New York-based law firm of Hankin & Mazel PLLC. The same can be said of Hoboken (the sixth borough), Weehawken, and the tonier towns along the Jersey Shore.
So, while there is hardly a profusion of illegal short-term rentals going on in the tri-state area, the practice does exist. “In the condo world, it’s becoming more common,” says Mazel. “In the co-op world, it’s still pretty rare.”
One of the reasons it’s rare is that it’s often done quietly, so we don’t necessarily know that it’s taking place. If a Hoboken stockbroker swaps addresses with a banker from Montmartre for a long weekend, it behooves both parties to keep it on the down-low. “Usually it’s done through word-of-mouth, or else on Craigslist,” Mazel says. “It’s more frequent than I’ve seen it in the past.”
The loophole that allows owners to explain the presence of strangers in the building is the “guest” provision. “Most proprietary leases allow you to have a guest for up to 30 days at a time. If you do it too often, and if you don’t live there at the time of the visit, the co-op might bring proceedings,” Mazel says.
Condos, which are real property, are harder to regulate in this way. But that doesn’t mean they don’t have rules. “If you keep doing it, putting people in one week at a time, one after the other, you’ll likely be violating some part of the house rules.”
Joe Balzamo, president of Alliance Property Management in Morris County, is more succinct: “It’s against the law to do that. It violates what’s written in the operating documents.”
In co-ops, especially—rarer in the Garden State than across the Hudson, but still prevalent in places like West New York and Weehawken—short-term rentals are clearly unlawful. “The proprietary lease says that the unit is for non-commercial use only,” says Mazel. “If you’re renting it, then, you’re violating the proprietary lease.”
Condos, especially in New Jersey, are well acquainted with this notion, and have rules in place to prevent it. “You have to secure a longer lease for the property,” Balzamo says, usually for a minimum of one year. “I’m not aware of any short-term lease sublettors.”
The violation of operating documents might be compounded by local law, depending on where in New Jersey you live. In Morristown, for example, there is a standing ordinance that every time a new tenant enters your property, you have to obtain a certificate of occupancy. “In Morristown, they can fine you $1,000 if you don’t have a C of O,” Balzamo says. Other municipalities, particularly in Monmouth and Ocean Counties, have similar laws on the books. And New York City has outlawed the practice.
And there is the rub: getting caught with your hand in this particular cookie jar can be prohibitively expensive.
“If it’s done in violation of proprietary lease or condo bylaws, you can assess a fine,” Mazel says. Co-ops can go further, moving to terminate the proprietary lease and in effect evicting the offender from the cooperative. The board can also sue for damages, including legal fees. The cost of getting caught, then, vastly outweighs money brought in by rentals.
On the Sly
Of course, it’s also true that the board may never find out. Or they may find out weeks later, when the renter is long gone, and there is zero urgency to do anything about the situation. In the case of the stockbroker and the Parisian banker, how would anyone really know? And even if they did, so what?
“If you have a good tenant, and no one complains,” Balzamo says, “they might not know what’s going on.”
Still, it’s not without risks. “I would be careful,” Mazel advises. “I would not recommend you do it.”
The majority of co-op and condo homeowners oppose allowing short-term leases. Think of it as noise. It’s one thing when one of your neighbors has a loud party once a year, quite another when he does this every Friday and Saturday night.
Mazel agrees. “It brings an unknown element to the building. Co-ops want stability to add to the quality of life of the building.” Apartment exchanges or short-term rentals “are very undesirable for the residents of the building.”
The unknown can be perfectly fine; in many cases, it is. But not all the time; depending on the behavior of the short-term guest. What if the person is a criminal, a pedophile or a crack addict?
“A board can put it in the governing documents, to require all guests to be declared. The doorman or super or whoever watches the front door can discern who is supposed to come in,” Mazel says. “It’s a security issue.”
That said, there are also reasons for boards to look the other way for some short-term rentals, especially when they are exchanges—situations when both owner and renter have the same incentive to be on their best behavior.
“I think there are some fears that somehow ‘transient’ people are ‘lower class’ people, but I think that is just a misconception and really drives these one-year rules in many communities,” argues Fran Katz of Matawan-based In Time Investment Group, a company that specializes in short-term rentals.
The apartment exchange, then, is a victimless crime. Does it hurt anyone if a guy from New Jersey and a guy from Paris swap pads for a few nights? Why waste resources criminalizing it? Why not create a policy, let it happen, and profit off the deal?
This transparency could potentially help everyone in the building. The problem with it now is that it’s done in the dark. After all, at the end of the day, it’s the owner who is on the hook for what happens in her apartment. If he or she gets caught doing an apartment exchange, and the renters trash the building or make too much noise, the owner is ultimately responsible. Why not just make it legal, and regulate it more?
“With this economy, many people can't afford to sell their condo if they want to move into another house,” says Katz. “They owe more on their mortgage than they can get for their house, so it's more cost-effective for them to rent it out.
The HOA is doing a disservice to this landlord when they make it harder and more costly to rent it out. Especially when they can get a premium for renting out a furnished, short-term apartment.”
In any event, the law doesn’t seem to have much of an effect on the actual practice of apartment exchanges; it’s just driven them further underground. Although in New Jersey, at least, swaps happen less frequently than in New York.
“In my experience,” says Balzamo, “it’s not something that happens very much.”
Greg Olear is a freelance writer and a frequent contributor to The New Jersey Cooperator.