Stay Vigilant to Avoid Hefty Fines for Illegal Sublets

April 5, 2017
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Life as a landlord in New York City requires owners to suffer insult and injury. An example is when a rent-stabilized tenant illegally sublets the apartment on websites like Airbnb for short-term rentals. Usually, the tenant is profiteering. The tenant charges a daily rent that is much more than the legal registered rent that the owner is limited in collecting. If the landlord charges more than the legal rent, the tenant will be awarded treble damages. So, the owner provides all the services and pays the taxes and the tenant profits. That is so wrong.

To add insult to the injury, even if the owner is not involved and has no knowledge of the illegal use, the Environmental Control Board (ECB) will impose hefty fines on the owner. To avoid the hefty fines, owners must stay vigilant and be aware who is living in their buildings. Even when the tenant is a fair market tenant, the owner needs to be careful. Often, because the fair market tenant is paying the market rent, an owner does not really care if a tenant sublets the apartment. However, the ECB does care and will use the tenant’s illegal activity to impose draconian fines on the unwitting owner. Owners pay enough in taxes. They do not need to also finance the city by paying fines for the illegal acts of their tenants.

How does an owner find out about the illegal subletting? One way is to have the super, neighbors, and managing agent monitor who comes and goes from the building. If strangers enter the building with suitcases, inquiries should be made. If they see something, they should say something. Neighbors do not like strangers coming and going from the building at all hours of the night. This is especially true when they are people who use the apartment as a fraternity house for parties. It is rare for owners and tenants to agree on anything. However, both owners and tenants are unhappy with short-term rentals that affect the building’s security and the neighbors’ quiet enjoyment of their apartments.

Another way to become aware of illegal subletting is to enlist the brokers that owners use to rent their apartments to monitor the websites where apartments are listed, such as Airbnb. Brokers are often on those sites and can help owners find out if apartments in their buildings are being illegally rented for short stays.

If an online listing is found, it can provide irrefutable proof that the owner can use in an illegal sublet and illegal use court case. For example, the terms of the illegal sublet are admitted on the website. The advertisement will include the rent per night, the number of nights the room or apartment can be rented for, the security deposit required, and a calendar of available nights. Also, there are often comments and recommendations from past illegal subtenants discussing their time in the room or apartment. Sometimes, the tenant recommends the illegal subtenant. An owner could have someone rent the apartment or room so there will be a witness who can testify from personal experience. In the case of a rent-stabilized tenant, such a website is a gift that will help the owner recover the apartment. That will entitle the owner to a vacancy increase, a longevity increase, and the opportunity to make improvements to the apartment that will move the legal rent closer to the market rent. Then, there will be less of an incentive for a tenant to illegally sublet. It is possible that as a result of the legal increases, the apartment could be deregulated. (However, beware of the rule created by the Altman case that the legal rent of the outgoing tenant must be over the threshold—currently $2,700— before the apartment is deregulated. The Court of Appeals has granted permission to hear an appeal of the Altman case.)  

Also, there is currently a law against advertising short-term rentals. If you find a website created by a tenant advertising short-term rentals, that advertisement violates the law and the usual lease provision that tenants will comply with the law. So, the new law gives owners another ground to recover possession or convince the tenant to stop the illegal conduct.     

Focusing on details can provide information that can help owners discover illegal sublets. An example is reviewing envelopes and rent checks that come in the mail. Look at the postmark on the envelope to see where it is mailed from. If the ZIP code is different than the one for the apartment, an investigation is in order. Review the checks to see if the numbers on the checks are close to each other. That is evidence that the account is being used only for paying the rent and utilities. Sometimes, the tenant will use a bank from outside the city. These details can be helpful in non-primary residence cases as well.

Owners have the right to inspect their property. Annual inspections are a useful tool to alert owners not only to illegal sublets, but also to illegal alterations and non-primary residents. They can also provide evidence that can defeat a succession claim. With regard to the illegal sublet, if the tenant is making it difficult to provide access, the owner should investigate further. Once access is gained, look to see if there are locks on the bedroom doors. Particularly, focus on access to the fire escapes. If there is a lock on the door to a room that leads to the fire escape, the tenant has created a fire hazard to the occupants of the apartment and first responders. Locks on the bedroom doors should not be able to be locked from the outside of the room. That is evidence of a sublet of part of the apartment, even if the tenant is living in the apartment and only subletting a room. 

Owners needn’t learn the hard way about the dangers of illegal subletting and the risks of exorbitant and unfair ECB fines. If owners prevent tenants from illegally profiteering from short-term rentals, owners will avoid ECB fines, ensure that they profit from their property, and enhance the safety and quiet enjoyment of their building for their other tenants. Then, life will be a little less unfair and frustrating for New York City apartment owners.