Authorizes holding title of real property of a land bank in the name of a subsidiary

Title of bill

An act to amend the not-for-profit corporation law, in relation to the powers of a land bank

Purpose

To authorize the land banks to organize subsidiaries and hold title to property in the name of the subsidiaries.

Summary of provisions

Section one adds two sections to § 1607 of the Not-For-Profit Corporation Law that would authorize the land banks to organize subsidiaries.

Section two amends § 1609 of the Not-For-Profit Corporation Law to allow land banks to hold title to property in the name of the lawfully organized subsidiaries.

Section three provides the immediate effective date.

Existing law

Article 16 of the Not-For-Profit Corporation Law provides for the powers of land banks.

Justification

The Authority Budget Office has taken the position that local public authorities, which include land banks, do not have the power to organize subsidiaries unless expressly authorized to do so by enabling legislation, even when such actions are in furtherance of an enumerated purpose. An amendment is proposed to the Land Bank Act granting land banks the power to organize subsidiaries under limited circumstances and hold title to real property in the name of lawfully organized subsidiaries as follows:

*The primary reason for which a subsidiary may be organized must be to limit the potential liability impact of the subsidiary's project on the land bank or because state or federal law requires that the project of a subsidiary be undertaken through a specific corporate or business structure. These are the same reasons state authorities are currently permitted to form subsidiaries.

*Land banks often acquire properties for the purpose of stabilizing and marketing them for sale. Environmental studies and testing, which requires site-control, might be conducted during the period that the land bank holds title. With test results in hand, the property can be more effectively marketed to buyers who will know the extent of remediation the priority requires. However, without the ability to hold potentially contaminated sites in a separate business entity, land banks are less inclined to take title to these risky properties. If the property could be held in a separate business entity, liability associated with such properties would be segregated from the remainder of the land bank's assets. Use of a subsidiary would be available for other high risk properties as well (e.g. a condemned or structurally compromised building). A land bank's board of directors would have to utilize their discretion when deciding if the risk associated with the property warrants the cost of forming a subsidiary.

*Land banks have found that a single-asset business entity must be formed in order to borrow against certain property for renovation expenses. Lenders require this so that liabilities associated with the rest of the land bank's inventory do not affect the property serving as collateral for their loan.

*To ensure that subsidiaries will not result in any loss of transparency, land banks would have to include properties held by subsidiaries in their property inventories required by the Land Bank Act and subject to FOIL, and in all reports made annually to the Authorizes Budget Office. The amendment further specifies that the name of the subsidiary must be reasonably related to the name of the land bank of which it is a subsidiary for ease of public identification.

*The amendment states that lawfully formed subsidiaries and properties held by such subsidiary shall be exempt from all taxation, just as land banks are exempt.

Legislative history

New bill

Fiscal implications

To be determined

Local fiscal implications

To be determined

Effective date

Immediately