How to Handle Signing and Renewing Leases with Cotenants
Cotenants are two or more tenants who rent the same apartment under the same lease. Sometimes cotenants sign at the same time or a cotenant may be added later to an existing lease. In New York City, due to the short supply and high demand for apartments, there’s a good chance that a primary tenant will approach you seeking to add a roommate to the lease. After splitting rent for a while, the roommate might want to seek the stability of knowing that he or she could stay in the apartment if the other primary tenant leaves. Once this roommate is named on the lease, the individual is not a roommate anymore, but rather a cotenant. Cotenants are each 100 percent responsible for carrying out the lease agreement, including paying all the rent. When one cotenant leaves, the remaining cotenant remains fully responsible for carrying out the agreement.
Over the course of managing your building, you may face trickier situations involving cotenants. For example, a cotenant may ask you to remove another cotenant’s name from the lease or to replace one cotenant with another. It’s important to know how to handle these requests properly. If you don’t, you might end up inadvertently collecting a rent overcharge. On the other hand, you might lose out on a rent increase. Here are some questions owners have when dealing with cotenant situations, and their answers.
Removing Departed Cotenant’s Name from Lease at Request of Remaining Cotenant
Q A cotenant told me that the other cotenant moved out of the apartment, and asked me to remove the departed cotenant’s name from the renewal lease I’ll be sending. Should I comply with this request?
A If a cotenant moves out, the remaining cotenant is entitled to a renewal lease. In an opinion letter, the Division of Housing and Community Renewal (DHCR) stated that if two persons are named as tenants on a lease and one vacates, the owner must give the remaining tenant a renewal lease, not a vacancy lease [Opin. Ltr. by Charles Goldstein, July 2003].
But before you issue a renewal lease in the remaining tenant’s name only, you should ask for verification, such as a letter from the departing cotenant. If the apartment is rent stabilized, the cotenants named on the lease both have the right of renewal. If one cotenant wishes to have a new lease naming him only, he should get the moving co-tenant’s consent in writing. You may not pick sides and renew to only one of the current named tenants without consent of the other.
In one case, a mother and son were both named cotenant on the rent-stabilized lease of an apartment. The owner issued a renewal lease in the mother’s name only because he believed the other tenant did not occupy the apartment as his primary residence. The DHCR ruled that the cotenant’s name was improperly omitted from the renewal lease. The owner was required to either renew the lease on the same terms and conditions or send a timely lease nonrenewal and termination notice alleging nonprimary residence [Edgemont Associates LLC, Jan. 2013].
You should ask for a letter signed by that cotenant stating that he’s moved from the apartment and wants his name removed from the renewal lease. If the remaining cotenant claims that this isn’t possible—for example, because the cotenant has moved out of the country and can’t be reached—you can ask for a letter signed by the remaining cotenant stating that the cotenant has moved and wants his name removed from the renewal lease. But keep in mind that this is a little more risky.
If the removed cotenant with the right to a lease renewal shows up, he may claim that you improperly removed his name from the renewal lease. And the cotenant could file a complaint with the DHCR, claiming that he’s entitled to have his name put back on the renewal lease.
If you can’t get this type of statement, keep the name of the cotenant on the renewal lease. If the cotenant has really moved out, he won’t sign the renewal lease that you’ve offered.
Collecting Increase Because Cotenant Has Left
Q At the written request of a cotenant, I removed his name from the renewal lease. Am I entitled to collect a vacancy increase from the remaining cotenant?
A No. If the remaining tenant stays on as the only tenant and signs up for a new term, it is considered a renewal lease. In one case, the DHCR ordered an owner to refund a $15,000 rent overcharge for improperly collecting a vacancy increase. The owner had collected a vacancy increase from one cotenant after he renewed his lease without the other cotenant. The DHCR ruled that an owner can’t collect a vacancy increase in this situation [Kostas and Michael Realty Corp., Feb. 2001].
The remaining tenant could renew the lease and take on one “roommate” or someone who is not on the lease. However, unless this roommate is added to the lease, you would not be entitled to collect a vacancy increase from the remaining cotenant.
Collecting Increase for Adding Cotenant
Q May I collect a vacancy increase for adding a cotenant’s name to the renewal lease?
A Yes. In most cases, a vacancy lease occurs when one tenant vacates an apartment and a new one moves in. However, a vacancy lease can also occur if an existing tenant asks the landlord to "add" someone to the lease, since this is then considered a "new" lease. If you renew and a new cotenant signs the lease, the landlord can charge the vacancy increase. This is considered a "new" lease and is subject to the vacancy allowance rules.
An exception to charging the vacancy increase applies if the cotenant you add is the tenant’s spouse. You are required to put spouses on the lease if you are requested to do so and cannot charge the vacancy allowance. However, if a tenant asks you to put his fiancée on the lease before they are married and officially labeled spouses, you can charge the vacancy increase.
Returning Security Deposit
Q If a cotenant moves out and his name is removed from the renewal lease, must I return all or part of the security deposit to him?
A No. The DHCR’s Factsheet #9 on “Security Deposits” says that you must return the security deposit at the end of the lease. But, since the lease is still in effect after one cotenant leaves, you can keep the entire security deposit until the remaining cotenant moves out.
The above doesn’t apply if a new cotenant replaces the departing cotenant and you sign a new vacancy lease with the remaining cotenant and the new cotenant. In that case, the prior lease would no longer be in effect. So you should return the security deposit to the departing cotenant and remaining cotenant and collect a new deposit from the remaining cotenant and the new cotenant.
Accepting Replacement Cotenant
Q After a cotenant moved out of an apartment, the remaining cotenant asked to me to put a new cotenant’s name on the lease to replace the cotenant who moved. Must I accept the person the remaining cotenant wants me to add to the lease?
A No, unless the replacement cotenant is the tenant’s spouse. Under rent-stabilized rules, you must add the name of a tenant’s spouse to a renewal lease when requested. In all other cases, you are not obligated to add anyone’s name to the lease, including when the lease is being renewed.
If a remaining cotenant wants you to add a new cotenant to the renewal lease, you have two options. The first is to add the new cotenant’s name to the lease. The advantage to this option is that you can collect a vacancy increase when you sign a lease with the remaining cotenant and the new cotenant. Also, the new cotenant becomes responsible for paying the rent. The second option is to renew the lease in the name of the remaining cotenant alone. If the remaining cotenant can’t afford to pay the rent, you can sue to evict him for nonpayment.
Checking Cotenants’ Ability to Pay Rent
Q When I do a credit check on two cotenants who are about to sign a lease, should I make sure that each one can independently afford to pay the rent before renting the apartment to them?
A The best situation is if each cotenant can independently afford the rent. That’s because if one cotenant later moves out and refuses to sign the renewal lease, you’re still required to sign a renewal lease with the remaining cotenant. And that cotenant will then be solely responsible for paying the rent. If that cotenant can’t afford the rent, you may have to spend money to evict him for nonpayment.
Realistically, however, it may not be easy to find two cotenants who can each afford the rent independently. So you may decide to rent an apartment to two cotenants if their combined incomes are enough to pay the rent.
Whatever policy you choose to follow when deciding whether cotenants can afford to pay the rent, be sure to be consistent. Otherwise you could run into trouble with federal and state fair housing laws. Prospective cotenants may claim you’re discriminating against them by requiring each of them to be able to afford the rent if you didn’t require this for other prospective cotenants.
Requiring Cotenant to Obtain Guarantor for Renewal Lease
Q If I signed a lease with two cotenants and one drops out, I must still sign a renewal lease with the remaining cotenant. Even if I had a guaranty for the expiring lease, it may not apply to the renewal lease, since the parties to the renewal lease are now different. So I want the remaining cotenant to get a guarantor for the renewal lease. Can I condition renewal of the lease on the renewing tenant getting a guarantor for the renewal lease?
A Yes, according to a DHCR opinion letter, as long as the expiring lease was specifically guaranteed or the guaranty of the original lease also covered the expiring lease [Opin. Ltr. by Charles Goldstein, May 2000]. The Rent Stabilization Code requires that renewal leases must be offered on the same terms and conditions as the expiring lease. Therefore, if no guarantor was on the first lease, you may not impose this requirement on subsequent leases. So, if the expiring lease didn’t have a guaranty, you can’t require the renewal lease to have one.
The opinion letter also says that you can’t require the renewing tenant to get the same person who acted as guarantor of the expiring lease to act as guarantor of the renewal lease. The tenant is allowed to provide “a suitable alternate guarantor” if the original guarantor isn’t available or isn’t willing to guarantee the renewal lease.