BILL NUMBER:S3148A

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

PURPOSE OR GENERAL IDEA OF BILL:

Relates to residential 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.