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Q. I am a small landlord with a couple of walk-up buildings in Brooklyn. I have a lower duplex apartment available, and a prospective tenant is interested in not only living in the space but also operating a licensed day care from it.
She says she is willing to pay well above the asking rent in consideration of my approval of the situation. This sounds like it could be a win-win situation for all involved.
Is there anything I should consider before moving forward?
A. Yes, and it is complicated enough that you should hire an attorney experienced in this arena if you intend to explore it further.
The first issue pertains to zoning, a land use regulation tool that gives municipalities the authority to regulate the type of land use (e.g. residential, commercial, etc.) within a particular area.
Longstanding legislation in NY State protects certain types of daycare centers from local zoning regulation and, instead, limits local government control to fire, building, and heath regulations. However, depending on how the daycare is classified (e.g. “school age child care” vs. “group family day care”), different regulations may apply.
All daycare centers are also required to comply with the New York State Uniform Fire Prevention and Building Code. The code requirements are many and varied and your property would be subject to them. For example, the issue may arise as to whether your lower duplex has an adequate means of egress for a day care center or whether it is properly fireproofed.
If you are satisfied that a daycare facility could operate out of your property legally, you’ll need to consider how to structure the relationship with the tenant.
A standard residential lease would not be sufficient and your attorney will likely need to negotiate and draft a commercial lease. Further, considerations regarding adequate insurance coverage (potentially by both you and the tenant) will need to be addressed.
You will also want to make sure that your tenant is properly licensed. All daycare facilities require that the operator be either state licensed or state registered depending upon their classification.
Lastly, you’ll need to consider the tenant’s qualifications differently than you would a residential tenant. Is she dependent upon income from the facility to pay the rent and if so what is the likelihood that it will generate that income consistently--and what if it doesn't?
Once the daycare is operating, the tenant, and possibly you, could be responsible for certain ongoing conditions.
For example, daycare facilities must manage potential exposure to toxic paint or fumes, provide highly specific HVAC conditions throughout the year, and provide adequate square footage and outdoor play space per child. You’ll want to ensure that your tenant is complying with these regulations and that your property is capable of complying with them.
Though day care facilities provide an important public service to their local communities, you need to be well informed about their regulation before entering into a landlord/tenant relationship with a potential operator.
Mike Akerly is a New York City real estate attorney, landlord, and real estate broker. He is also the publisher of the Greenwich Village blog VillageConfidential.
Note: The information provided here is for informational purposes only. It should not be construed as legal advice and cannot substitute for the advice of a licensed professional applying their specialized knowledge to the particular circumstances of your case.