BILL NUMBER: S3987

SPONSOR: STAVISKY
 
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 adds a new section 220-a to define a residential 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 that include one or more residential dwellings 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.
              

The new section also 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 encumbering 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 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 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 residential ground 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 change in the
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 ground 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.

Section 2 provides the effective date.

 
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 encum-
ber 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:

2018: S.5219 referred to Judiciary; / A.353 - passed Assembly.

 
FISCAL IMPLICATIONS:

None to state.

 
EFFECTIVE DATE:
This act shall take effect immediately.