Crain's NY: State’s LLC transparency bill could have a major impact on the real estate industry

Eddie Small

Originally published in Crain's New York on .

A bill that aims to make it easier to determine the actual faces behind New York's limited liability companies has passed the state Legislature, but it remains unclear whether Gov. Kathy Hochul will sign it into law.

A limited liability company is one in which the entity or entities that control it have limited responsibility for upholding its contractual obligations and other liabilities. As it stands now, the people or companies that set up an LLC in New York are effectively guaranteed anonymity, as they do not have to provide their or their company's name on official documents, including deeds.

Virtually every New York LLC already has to register with the state's Department of State, but the information they need to include is very limited.

The only currently required public disclosures are a name, the county where the LLC is located and a mailing address, according to Tom Speaker, policy analyst with government watchdog Reinvent Albany, which supports the bill. Although some LLCs do put the name and address of the actual individual or company behind them in the mailing address field, many include only nonidentifiable information, such as a law firm or the name of the LLC itself.

Under the bill, sponsored by state Sen. Brad Hoylman-Sigal and Assemblywoman Emily Gallagher, LLCs doing business in New York would have to disclose the identities of their beneficial owners, meaning anyone who owns at least 25% of the company or has substantial control over it. This information would then be available in a publicly accessible database maintained by New York's secretary of state.

Hoylman-Sigal, who represents the 47th District, which includes much of Manhattan's West Side, in a statement singled out the real estate industry as one that the bill would affect for the better.

The legislation would go a long way toward revealing the owners of buildings in particular, as purchasing properties through an LLC is extremely common in New York. As a result, many renters in the city do not actually know who their landlord is.

"Across New York City, LLCs have been gobbling up apartments and buildings with almost no oversight. Because LLCs can easily shield the true owner's identity, these entities protect bad landlords from scrutiny by keeping them anonymous, even from law enforcement," Hoylman-Sigal said in the statement. "This bill will help law enforcement hold slumlords accountable and stop foreign oligarchs from parking their ill-gotten gains in New York City real estate."

Reactions to the legislation from landlord groups have ranged from opposition to indifference, while it has the support of tenant and government watchdog groups. But it still has to get past the governor.

Pros and cons

Opposition to the bill has largely come from business and real estate entities that view it as an unwarranted invasion of privacy. The New York State Business Council, an advocacy group for more than 3,000 companies, circulated a June memo slamming the bill as a move that would "jeopardize the privacy and security of thousands of businesses." Rather than focus on information the database would ostensibly reveal about absentee landlords or foreign oligarchs, the memo stressed that many small businesses like bookstores and restaurants are organized as LLCs, and the bill would expose them to "significant security risks by disclosing personally identifiable and confidential information to the public."

"A disgruntled employee could use the information to shame their former employer, or overeager plaintiffs' attorneys could abuse the database to bring frivolous and unwarranted lawsuits against businesses," the memo read.

Speaker was skeptical of these arguments, saying he did not find them particularly realistic.

"We have just not seen a case where that's been an issue," he said of the privacy concerns. "There's been no reporting, no stories that we have heard that support that argument at all. I'm not saying that it's totally baseless but just that we have not seen anything."

Housing Justice for All, a tenants' rights group, supports the bill as a way to make it easier for renters to contact their landlords and know who they are, according to campaign coordinator Cea Weaver. The added transparency also likely would make landlords feel more responsible for keeping their buildings in good condition, she said.

"We think that the LLC, which protects the landlords from liability, also creates worse landlords because they feel shielded from the consequences of their behavior," she said.

A Real Estate Board of New York spokesman said only that the group is reviewing the legislation, while a pair of smaller landlord advocacy groups—the Rent Stabilization Association and the Community Housing Improvement Program—offered slightly differing opinions on the bill.

The RSA opposes it outright, according to Executive Vice President Frank Ricci. Tenants already know the person responsible for repairs in their building, and making information about who owns what property more readily available to anyone would not be much of a public benefit, he said.

"We think that there should be some kind of specific process for people to apply and have a specific reason to see who the members are of an LLC," he said. "There's no real public purpose in this bill."

CHIP, meanwhile, is not against the bill but does not see how it will do much to improve the city's housing market. In short, there are bigger real estate problems New York needs to focus on, according to the group's executive director, Jay Martin.

"If Jay Martin is the property owner, and everybody in the building knows Jay Martin is the property owner, great," he said. "Does that mean I'm going to suddenly get the resources to repair the building under a rent-stabilized system? I don't think so."

A win for Hochul?

Although the legislation has political clout, any action from the governor could still be months away. Hochul spokesman Justin Henry said only that she would review the legislation.

Groups in favor of the bill say it could provide the governor with a solid housing accomplishment after extremely disappointing budget and legislative sessions.

"If the governor's office wants a win after a legislative session in which very little to nothing was done on housing, this would be a good step," said Speaker. "A lot of transparency bills are only supported by watchdogs like ourselves, but this one has a pretty wide base of support."