Short answer: a proprietary lease is the long-term lease a NYC co-op gives each shareholder, granting the right to live in a specific apartment. In a co-op you do not buy real estate; you buy shares in the corporation that owns the building, and the proprietary lease attached to those shares is what lets you occupy your unit. It sets the rules on maintenance, repairs, renovations, subletting and sales.
For most co-op owners, the proprietary lease is the single most important document they will sign and the one they are least likely to read. It governs day-to-day life in the building for as long as you own the apartment, and many disputes between shareholders and boards come down to what it says.
How a Proprietary Lease Works
A co-op buyer receives two things at closing: a stock certificate showing the shares allocated to the apartment, and the proprietary lease for that apartment. The two travel together; you cannot sell one without the other. Instead of a deed, the co-op owner’s interest is personal property, which is why co-op loans are secured by the shares and lease rather than a recorded mortgage, and why co-op buyers pay no mortgage recording tax.
Proprietary leases have long terms, often running for decades and renewing, so in practice the lease lasts as long as the shareholder owns the shares. When an apartment is sold, the seller assigns the lease to the buyer, or the co-op issues a new lease, with the board’s approval.
What a Proprietary Lease Covers
| Topic | What the proprietary lease usually says |
|---|---|
| Maintenance | Your obligation to pay monthly maintenance and any special assessments, and the consequences of not paying |
| Repairs | Which repairs are the shareholder’s responsibility (typically inside the apartment) and which belong to the co-op (building systems and common areas) |
| Alterations | When board approval is required for renovations, and the alteration agreement you must sign |
| Subletting | Whether and when you may sublet, for how long, and with what approval and fees |
| Transfers | That sales require board consent, and any flip tax or transfer fee |
| Occupancy | Who may live in the apartment, and rules on pets, noise and use |
| Default | What counts as a default and the co-op’s remedies, which can include terminating the lease |
Proprietary Lease, Bylaws and House Rules
Three documents govern a co-op together. The proprietary lease sets out the relationship between the co-op and each shareholder. The bylaws govern how the corporation runs: board elections, meetings and voting. The house rules cover day-to-day matters such as moving hours, deliveries and renovation schedules, and boards can usually change them more easily than the lease. Where they conflict, the proprietary lease generally controls over the house rules. The lease or bylaws are also where a building’s flip tax is authorized.
Can the Co-op Change the Proprietary Lease?
Yes, but not easily. Amendments usually require the approval of a supermajority of shareholders, often two-thirds of the outstanding shares, as set out in the lease itself. Once adopted, an amendment binds every shareholder, including those who voted against it. Buyers should ask whether any amendments are pending, because changes to subletting, pet or flip tax rules can affect the apartment’s value.
What If the Proprietary Lease Is Lost?
Lost stock certificates and proprietary leases are common, especially in older sales. The co-op can issue replacements, usually after the shareholder signs a lost document affidavit and indemnity. Replacing them before listing the apartment avoids delays at closing, because the buyer’s lender will require the original or a replacement.
What Buyers Should Review Before Signing
- Subletting and occupancy rules, if you may need to rent the apartment or have family live there
- Alteration rules and the building’s alteration agreement, if you plan to renovate
- Which repairs are your responsibility, especially windows, pipes inside walls and HVAC
- The flip tax and any transfer fees you may owe when you sell
- Default and termination provisions, and any attorney-fee clause
For the rest of the co-op purchase process, see our complete guide to buying a co-op in NYC.
Buying a co-op? Our NYC real estate attorneys review the proprietary lease, bylaws, house rules and building financials so you know what you are agreeing to before you sign the contract.
Frequently Asked Questions
What is a proprietary lease?
A proprietary lease is the lease a co-op corporation gives each shareholder, granting the right to occupy a specific apartment. It is issued together with the shares allocated to that apartment and sets the rules for maintenance, repairs, alterations, subletting and sales.
Is a proprietary lease the same as a deed?
No. A deed transfers ownership of real property. A co-op owner owns shares in a corporation, and the proprietary lease gives the right to live in the apartment. Condo and house buyers receive a deed; co-op buyers receive shares and a proprietary lease.
Does a proprietary lease expire?
Proprietary leases run for long terms, often decades, and typically renew. In practice the lease continues for as long as you own the shares.
Can a co-op board change the proprietary lease?
Yes, usually with the approval of a supermajority of shareholders, often two-thirds of the shares, as the lease specifies. Amendments then bind all shareholders.
What happens if I lose my proprietary lease?
The co-op can issue a replacement, usually after you sign a lost document affidavit and indemnity. Do this before listing the apartment to avoid closing delays.
Reviewing Co-op Documents?
Our real estate attorneys review proprietary leases, bylaws and building financials for NYC co-op buyers. Schedule a free consultation.
Contact Us Onlineor call (212) 920-5989