Real estate transactions work in different ways for different properties. A case in point is if you’re a co-op buyer. Here, you’ll not be considered the actual owner of that residential property. Instead, you’ll be a shareholder of a corporation that owns that house or building. And, your shareholding rights will be governed by a legal document known as a proprietary lease.

Here, we’ll help you explore the concept of proprietary lease in detail. Facts that you, as a homeowner, should know.

Basically, the occupancy agreement is made between a cooperative corporation and the shareholder — whereby the shareholder possesses a dwelling unit by means of cooperative shares. And, the share is directly proportional to the size of the co-op. The larger it is, the bigger the share.

Unlike in the case of buying a condo, when you buy a co-op apartment, you’re not buying the real property. You’re just buying the shares of that property — becoming the tenant of the building.  

What is proprietary lease?

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A proprietary lease is a contract between a cooperative corporation and its shareholders whereby certain rules and regulations are documented and agreed upon by both parties. These rules pertain to renovating the apartment, subletting it, maintaining it, and repairing it.

In short, the contract regulates the exact terms of the shareholder’s residency in the building. This type of legal agreement is popular in places such as New York City where the majority of real estate are coops. 

Keep in mind that the cooperative is the owner of the property, not the individual or the tenant. The latter gets a long-term lease during which time they have to make monthly rental payments, pay the taxes, insurance, and maintenance payments to the cooperative.

How is proprietary lease different from co-op bylaws?

Bylaws are another set of rules that, apart from proprietary leases, dictate how co-op should be run.

The key difference is that bylaws take a larger view of a co-op’s and shareholders’ responsibilities. Proprietary leases, on the other hand, define the contractual relationship of each shareholder with the co-op. They also entail the rights and responsibilities of each party.

For instance, bylaws define management of the housing cooperative, the co-op board of directors, and the election procedure. Bylaws also mention binding house rules for the tenants or residents of the co-op.

Homebuyers who join a co-op acquire their stake in that property. But, they also have to agree to these bylaws and proprietary lease terms for their residential unit. 

What would terminate a shareholders proprietary lease?

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A proprietary lease gives the co-op a lot of power, including the right to terminate a shareholder’s contract. However, such an extreme step of termination occurs only when a shareholder has violated an important aspect of the lease.

This default could be failure to pay the monthly maintenance, unwillingness to follow the rules of the cooperative, or if the shareholder wants to renovate the apartment without keeping the building code in mind.

Can my boyfriend move into my co-op?

In all likelihood, a proprietary lease will not stop your boyfriend or girlfriend from moving in with you. That is to say, the co-op would not be legally entitled to evict you or your living partner without any real cause.

Key takeaway

A proprietary lease is a binding lease agreement that governs the relationship between a shareholder and a cooperative corporation, legally. It defines the terms and conditions of a shareholder’s residency in a specific apartment of that building. The shareholder must agree to the terms, the rights of occupancy, and the obligations mentioned in the lease.

A proprietary lease covers the right to sublet, the maintenance charges, the right to mortgage, and most importantly the co-op’s right to terminate the lease.

Read more: Rent back agreement

Everything you’d want to know about a proprietary lease was last modified: October 10th, 2022 by Ramona Sinha
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It is good to know that there are these types of contracts that protect the real estate of disastrous tenants, like a good part of foreigners who have lived outside the law all their lives.