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Changes in Policy Allow Partial Sales of Mixed-Income Rental Buildings
Mixed-income rental building owners are now the subject of a large policy shift implemented by the Department of Law (DOL) of the State of New York on October 10, 2014. The goal of the change is largely that of preserving (and perhaps adding) affordable housing for NYC tenants and future homeowners.
As it currently stands, building owners who provide mixed-income rentals, are benefiting from government subsidies, such as bond financing, low-income housing tax credit and 421-a exemptions, awarded in exchange for reserving twenty percent (20%) of the units as income-restricted. These benefits protect the units for low-income tenants for a period of at least 30 years from any deregulation. However under the prior regulations of the DOL, these building owners were not allowed to sell their market-rate rental units, if they continued to operate income-restricted units. This prohibitive policy is exactly the issue that the new regulation seeks to remedy.
Under the new regulations, a building owner will be allowed to petition for an exemption which would allow the owner to conduct a partial sale of those units which are market-rate rentals (following a partial conversion to condominium or cooperative units). The right to ask for this exemption is entirely within the Martin Act. N.Y. Gen. Bus. Law §§352-53. The Martin Act is an almost-century-old New York piece of legislation, which among other things requires that when an owner wishes to convert a building from rental status to a condominium or cooperative he must submit an offering plan to the New York Office of the Attorney General. The act allows for sponsors to seek an exemption from the Martin Act regulations with the Department of Law by way of a petition to the Attorney General, who in its discretion may grant the relief sought. When partially converting the units, the building owner (sponsor) must offer all the bona-fide tenants the right of first refusal – or the right of purchasing the apartments that they currently rent, before the sale of those units to the public. Furthermore, the partial conversion would be applied as a non-eviction plan, which means that the unit owners who do not wish to participate in the partial conversion, are not under threat of imminent eviction from their units.
The actual petition application must be submitted to DOL prior to the submission by the building owner of the offering plan. It must contain certain elements in order to be valid. First, it must contain an attorney transmittal letter with the required NYCRR unqualified statements, along with an affidavit from the principals of the sponsor containing the following: (a) financing that encumbers the property; (b) regulatory agreements against building; (c) the current number of units to remain as income-restricted (and the method of restriction); (d) disclosure of rent-stabilized units; (e) the number of units that will be maintained as income-restricted if the petition is granted, and if an when the nature of those units will ever change; (f) condo/coop board structure which ensures that owners and tenants are adequately represented. Lastly, the petition must be followed by a letter of support from the relevant housing finance agency (HPD, HDC or HFA), all of which have agreed on unified requirements prior to a letter of support being issued. The entire petition will be acted upon by the DOL within thirty (30) days of receipt. Furthermore there is currently no fee for this service. All petitions must be sent to:
While it is too soon for the practical implications of these regulations to manifest themselves, it certainly has opened up the passageways for building owners to take advantage of partial conversions while promising to sustain an income-restricted rental market indefinitely.
The text of the memorandum issued by the Department of Law of the State of New York can be found here.
Changes in EPTL Allows Renunciation without Court Approval
A change to the Estates, Powers and Trusts Law (“EPTL”) has arrived, and it removes what was once a burdensome requirement on the estates of decedents. A new law which took effect as Chapter 315 of the Laws of 2014, aimed to amend Section 2-1.11 of the Estates, Powers and Trusts Law. The old law mandated and required that personal representatives of decedent’s estates (whether as executors or administrators), obtain court approval prior to making a renunciation of any gifts under the estate. The EPTL requires that a renunciation by the beneficiary be filed within 9 months of the effective date of the disposition of the gifts. In order for the renunciation to be effective it must be in writing and filed with the clerk of court having jurisdiction over the will (or otherwise the court which would have had probated or administered the estate). A renunciation by the beneficiary, acts to reject the gift to the beneficiary by essentially treating the beneficiary as having predeceased the decedent.
This created a cumbersome and real problem in a scenario where two spouses who died close in time with one another, had wills which left all their estates to their children (as beneficiaries) upon the death of both spouses. Under the old law, the estate of the first spouse to die (“first spouse”), would have to transfer all of the estate property to the estate of the second spouse to die (“second spouse”), who would then distribute to the beneficiaries (who are the same under both wills). This would cause undue financial hardship as to administration costs of the estate, as well as risk the 9 month renunciation period because the fiduciary for the estate of the second to die, would have to petition the court for authorization to renounce, which could extend past the 9 month period and make the renunciation invalid, therefore necessitating the burdensome and expensive transfers from one estate to another and then to the beneficiaries.
The new law allows for the personal representatives of the estate of the second spouse to renounce the gifts from the first spouse without court authorization, thereby allowing the first spouse’s personal representative to distribute the gifts to their intended beneficiaries. The proponents of the law stated that “because such renunciation does not alter the identity of the beneficiaries of either estate, requiring court authorization results in unnecessary expense and delay”. The amended section removes the necessity for prior court approval for a renunciation, but not the actual availability of the courts authorization. This means that personal representative of a decedents estate may still elect to obtain court approval prior to the renunciation. The new law applies to both testate and intestate decedents.
New Sprinkler Disclosure Riders to Residential Leases
As of December 3, 2014, all residential leases will be required to contain a “conspicuous notice in bold face” regarding the existence of a sprinkler system within the premises. If no sprinkler system exists, that information must be disclosed. If a sprinkler system exists, the date of the last maintenance and inspection must be disclosed. The law applies to all types of residential properties such as condominiums, cooperatives and any other leases which purport to lease a residential space. This law was passed on August 5, 2014 and codified in New York State Real Property Law, Article 7, Section 231-a, to become effective December 3, 2014. The new law comes as a direct result of a fire which took the lives of three people near Marist College in 2021. The law affects new leases and renewal leases as of the effective date of December 3, 2014. The statute is silent as to consequences for not including the rider in residential leases. Prestige Title is providing a sample/template rider which can be used in conjunction with residential leases. Click here for the form.
If you have any questions or would like further information regarding any of the articles in this newsletter, please contact Keith Eng, Esq. (keng@prestitle.com) or Anthony Chiellino at (achiellino@prestitle.com) or (212)651-1200.
Also, if there are any topics that you would like us to include in future newsletters, please feel free to e-mail us with suggestions at info@prestitle.com.
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