BILL NUMBER:S5245A

TITLE OF BILL:  An act to amend the real property law, in relation to
ground leases

PURPOSE OR GENERAL IDEA OF BILL: 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.