Relates to ground leases

Summary of specific provisions

The real property law is amended by adding a new section 220-a.

Section 1. Section 220-1. Residential ground leases.

Defines residential ground lease for the purposes of this section only, a "residential ground lease" shall be defined as a rental agreement that:

(a) has a term of at least ten years;

(b) is for the use of real property, which may or may not include any improvements or structures, but shall not apply to real property owned as the common property of any Indian nation, tribe, or band as such lands are described under and protected by Indian law and/or Title 25 of the United States Code;

(c) allows a tenant to construct or substantially improve, renovate, or rehabilitate structures or improvements that include one or more resi- dential dwellings upon such real property.

Section 2. Concerns the ability of holders of residential ground leases to refinance their property, and includes guidelines for lessors. For example, absent an express provision prohibiting a lessee from encumber- ing its interest, a lessee may encumber up to and including its entire interest in such residential ground lease. If a residential 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 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 writ- ten 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 residential 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 NYNJ-CT-PA, as established the preceding August. If

lessee has encumbered its interest in a residential 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 hold- ing 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 finan- cially 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

2013: A.7269-A/S.5245-A: Passed Assembly. 2014: A.7269-A/S.5245-A: Passed Assembly.

Fiscal implications

None to state.

Effective date

This act shall take effect immediately.