Proprietary Leases: What They Are, And How they Work

Written by Kim PinnelliUpdated: 10th Apr 2022
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You might wonder if buying into a co-op is better than buying a condo or renting an apartment. While they have some similarities, when you buy into a co-op, you get a proprietary lease which gives you the right to live in a unit of the property.

You don’t own the property, so you must understand that upfront. Here’s everything you need to know about proprietary leases and how they work.

What Is a Proprietary Lease?

A proprietary lease is a lease that shareholders of a co-op receive, which provides occupancy rights to a unit in the apartment building. However, the shareholders don’t own a unit like they would if they bought a condo. Instead, they own shares from a corporation that owns the property.

A proprietary lease is not purchasing real estate. Instead, it’s a lease that most closely resembles rent. You typically must get approval to do anything to the property, and you’ll pay a predetermined amount of monthly maintenance charges.

How Do Proprietary Leases Work?

A proprietary lease includes all the details of how you (a shareholder) can handle the property. It states who can live in the property; if/when you can sublet it; the cost of monthly maintenance charges, who will do the repairs, the right to mortgage your shares (if applicable), and the rights of the co-op to terminate the lease.

A shareholder or member of the co-op is both a tenant and a member. As a tenant, you must abide by the corporation’s rules, but as a member, you have the right to vote for the members of the co-op’s board or even be a member yourself.

Proprietary Lease Example

With a proprietary lease, you are both a landlord and tenant. While you must abide by the tenant laws yourself, including who can occupy the property, you can also site the lease should your neighbors not abide by the lease.

For example, your upstairs neighbor constantly hosts late-night parties, but the lease states the building has quiet hours from 11 PM – 6 AM. You can site the lease agreement and the violation to the board, who must do something about it.

The same rules apply if a neighbor has a maintenance issue that affects your unit. Let’s say your neighbor has a leaky pipe that leaks into your apartment. The lease will dictate how the situation should be fixed – whether a specific plumber must come out and fix it or if your neighbor is responsible for fixing the issue.

Proprietary Leases vs. Bylaws: The Differences that Matter

Bylaws and proprietary leases may seem similar, but they affect two different things. Bylaws govern the entire co-op and how it operates. Proprietary leases are the details with each shareholder individually. Bylaws focus on board members, how they are elected, how often they can run, and other organizational rules, including the number of board members allowed, the number of required meetings, and how subcommittees are handled.

Are Occupancy Agreements and Proprietary Leases the Same Thing?

Occupancy agreement is another term for proprietary lease. It doesn’t give you any rights to ownership of the property, but you have the right to live in the property according to the lease terms.

You aren’t buying a property itself, but instead, you buy shares of the corporation that owns the property. You get an occupancy agreement that gives you the right to live in the property along with the shares.

Bottom Line: Proprietary Leases

Weight the pros and cons of buying into a co-op before deciding. It’s not the same as being a condominium unit owner, but it has its benefits.

As a shareholder, you have some say in the board’s decisions (voting), but you also have many other rules and regulations you might not have to follow if you were the condo unit owner. Decide which is right for you and enjoy the right to either live in the property or sublet it and collect the rent.

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.