Relates to ground leases

Summary of specific provisions

Section 1 defines ground lease for the purpose of this section as a rental agreement that has a term of at least ten years; is for the use of real property, which may or may not include any improvements or structures; and allows a tenant to construct or substantially improve, renovate, or rehabilitate structures or improvements upon such real property. This definition shall exclude real property owned as the common property of an Indian nation, tribe, or band as such lands are protected under federal code.

Section 2 concerns the ability of holders of ground leases to refinance their property, and includes guidelines for lessors. For example, absent an express provision prohibiting a lessee from encumbering its interest, a lessee may encumber up to and including its entire interest in such ground lease. If a ground lease does contain provisions restricting the lessee's ability to encumber its interest, the lessee must obtain the lessor's written permission prior to such encumbrance.

Additionally, if the lessee is must receive the lessor's permission to encumber the lessee's interest, the lessor may only refuse to grant such permission for reasonable cause and must provide the lessee with a written statement that sets forth the basis for the refusal within fifteen days of a written request for permission from the lessee.

Finally, any around lease provision that limits the amount a lessee could encumber its interest, up to and including its entire interest in such ground lease, shall also adjust such amount annually on the first day of October of each year by the chance in toe regional consumer price index for all urban consumers, New York-Northern New Jersey-Long Island NY-NJ-CT-PA, as established the preceding August. If lessee has encumbered its interest in a ground lease, no adjustment that reduces the amount such lessee could receive shall be considered a breach of the around lease.

Any agreement by a lessee waiving or modifying the provisions as set forth in this paragraph shall be void as contrary to public policy.

Justification

Some co-ops in New York City are constructed on land owned by a holding company. The holding company leases the land to co-ops for a stated term sometimes as long as 99-years. Under the terms of the lease, some holding, companies may place restrictions on the lessee's ability to encumber its interest by refinancing.

In recent times, many co-ops have sought to take advantage of favorable interest rates to refinance and modernize in order to meet mandated requirements of the City of New York. Despite the fact that it is financially prudent for a co-op to undergo refinancing, there have been instances where the landlord exercises their contractual

right to deny new borrowing. This bill would require that when rejecting a request to refinance, the landlord mast give a reason for such a denial. Requiring the landlord to offer a justification for denial of refinancing would ensure that both parties are negotiating in good faith, as intended under the contract.

This bill would also adjust the amount that the encumbrance placed on the property in accordance with the regional consumer price index. The limits placed on many leases may have been appropriate at the time the lease was conveyed, but as a result of inflation, the maximum allowable encumbrance in many leases are likely out of date and must keep up with the current economic climate.

Prior legislative history

None.

Fiscal implications

None to state

Effective date

This act shall take effect immediately.