BILL NUMBER: S2433
SPONSOR: KRUEGER
 
TITLE OF BILL:
An act to amend the real property law, in relation to limiting the
amount of rent increases for residential ground lease cooperative apart-
ment buildings and establishing certain rights upon expiration of such
leases
 
PURPOSE:
This bill would limit rent increases for residential ground lease coop-
erative apartment buildings and establish certain rights upon the expi-
ration of such leases.
 
SUMMARY OF SPECIFIC PROVISIONS:
Section one amends § 223-c to the real property law to provide basic
protections to residential ground lease cooperative buildings located on
privately owned land. The bill build on existing law to provide residen-
tial ground cooperative buildings the right to renew their leases when
they expire, as well as the right of first refusal if the landowner
chooses to sell or transfer the land underlying a building. It limits
annual increases in the base rent payable by ground lease residential
cooperatives on or after the thirtieth anniversary of their initial
ground lease to 3% or the Consumer Price Index, whichever is greater.
The legislation also grants residential cooperatives the ability to
borrow money when necessary to pay for repairs and capital improvements,
notwithstanding prohibitions or limits in a around lease, unless the
subject ground lease owner denies consent for a reasonable cause within
15 days of receiving a written request. The provisions of this bill do
not apply to ground lease residential buildings located on land owned by
the federal, state, or city government or authority, any Indian nation
or tribe, or any registered charity which purchased land prior to Janu-
ary 1, 2024.
Section two contains a severability clause.
Section three establishes the effective date.
 
JUSTIFICATION:
There are dozens of residential cooperative buildings throughout New
York City containing thousands of homes that do not own the land under-
neath. Instead, private property owners lease the land to ground lease
cooperatives for set periods of time, and the buildings' residents make
rent payments to the landowner through their monthly maintenance fees.
When each building's lease is net to expire, an appraiser is tasked with
evaluating the land's fair market value, which is then used to negotiate
a rent increase between the landowner and the cooperative. Residential
cooperatives have extremely limited power in these negotiations since
the buildings cannot be physically moved, and existing laws do not
provide the right to lease renewal, limits on rent increases, or any
other protections. In this way, shareholders in ground lease cooper-
atives are in a similar position to manufactured home residents who own
their units but not the land on which they are located and cannot move
the structures.
In recent years, a growing number of owners of the land under ground
lease cooperatives have been demanding rent increases that are so exces-
sive that they put the financial viability of the residential cooper-
atives at risk. There are currently ground lease residential cooper-
atives that are facing rent increases as high as 1,000% from one year to
the next. While ground rent increases of this magnitude would be
extraordinarily difficult for any group of cooperative shareholders to
absorb, they threaten the very viability of the many residential cooper-
ative buildings which are occupied primarily by middle-income residents
on fixed incomes who have lived in their homes for decades. A number of
cooperative buildings with ground leases coming up for renewal in the
coming years face default due to the rent increases being demanded; this
would leave the longtime shareholders without their homes or any equity
while still owning mortgages on units that no longer exist. In certain
cases, the land under ground lease cooperatives has even been explicitly
marketed to prospective investors as an opportunity to obtain a prime
development site for a new luxury building once the existing residential
cooperative is unable to pay the rent demanded up on lease renewal, goes
into default, and is eventually demolished.
Many owners of the land under ground lease cooperatives have also
refused to allow buildings to borrow money required to perform critical
repairs and/or capital improvements. Numerous ground leases contain
language explicitly prohibiting cooperatives from taking on debt over
certain levels regardless of the circumstances. In some cases, property
owners have even prohibited ground lease cooperatives from borrowing
funds to perform repairs ordered by New York City agencies. Given the
high cost of maintaining aging buildings, along with the ongoing need to
make capital improvements to comply with changing laws, improve energy
efficiency and resiliency, and respond to emergencies, it is essential
for ground lease cooperatives to have the ability to borrow funds when
necessary.
As the housing crisis worsens, it is crucial that New York provide basic
protections to ground lease cooperative residents facing displacement
from their homes due to exorbitant rent increases and extremely limited
negotiating power in abnormal market conditions. This legislation
simply builds upon established state laws granting manufactured home
residents basic rights during the lease renewal process, and if the land
under their homes is sold, by extending comparable protections to ground
lease residential cooperatives that similarly cannot move their build-
ings from the land underneath.
 
FISCAL IMPLICATIONS:
 
EFFECTIVE DATE:
This act shall take effect immediately and shall apply to all existing
leases and to any renewals, amendments and other extensions of such
leases.

Statutes affected:
S2433: 233-c real property law