Without a comment period for cooperators or a comprehensive analysis by management, the East River board of directors has approved changes to the coop’s sublease rules, fees, and penalties.

The new bylaws take effect immediately and are meant to “bring in many hundreds of thousands of dollars a year,” according to a memo from the board distributed last week.

Yet, according to board member Lee Berman, no real financial analysis was presented to the board before the vote to change the bylaws. “No one could say whether the higher fees would push more shareholders to sublet under the table,” Lee told me. “No one could say whether letting shareholders sublet apartments forever would reduce our flip tax revenue. We may get more money in fees next month, which we need, but what about next year and the year after?”

SUBLEASE LIMITS
Old: Sublease can be for no less than one year. Sublease must be approved one year a time. May sublease for only 5 years in a 6-year period.	New: Sublease can be for no less than one year. Sublease must be approved one year a time. May sublease for an unlimited number of years.
SUBLEASE FEES
Old: Years 1–3: 50% maintenance Years 4–5: 100% maintenance	New: Years 1–2: 100% maintenance Years 3–4: 112.5% maintenance Years 5+ : 125% maintenance
SUBLEASE PENALTIES
Old: Sublet fee x 2	New: Sublet fee x 2.25 plus $250 per day if less than 30 days

Lee continued, “These changes were rushed through without any real analysis. It was all back-of-the-envelope math.”

That math looks something like this: with 57 official sublets at East River with an average monthly maintenance of $750, 1st- and 2nd-year sublet fees would increase $256,500 each year. In the third year, the extra revenue goes up to $320,625. In year 4, the increase is only $64,125; in year 5, $128,250. The sixth year — when a sublet would not be allowed under the old bylaws — the coop could take in an additional $641,250 on those 57 apartments.

Over ten years, the coop would average just under $300,000 in additional revenue each year, or about 1.33% of our 2014 annual budget.

To put that in perspective, the coop would need a 2% increase in maintenance fees (average $15 per apartment per month) to raise the same amount.

So, more revenue each year: so far so good. But the analysis Lee says he would have liked to see is how these fee increases might influence shareholders’ decisions about subletting.

These higher fees make it almost impossible for someone carrying a mortgage to break even on a sublet. A shareholder in that situation might decide to forego the approval process to avoid the fees altogether, letting more unvetted people into the coop.

On the other hand, those who can afford to sublet might now decide to do so indefinitely instead of selling their apartment when their 5-year sublet limit is up. That could decrease flip tax revenue, which our board heavily relies on to cover operating expenses.

Without any analysis of these scenarios, the board’s decision is based on numbers that add up today but might not tomorrow.