NYREJ Publishes Article by Thomas Kearns on Business Leasehold Condominium Fundamentals
New York Actual Estate Journal revealed an article on November 22 authored by Olshan Actual Property accomplice Thomas Kearns entitled “Business Leasehold Condominium Fundamentals – Half 2” (by subscription).
A 2018 column of mine for this publication outlined the fundamentals of economic leasehold condominiums however that article was restricted to using a complete constructing by a not-for-profit (NFP) which leasehold curiosity was then submitted by the NFP to a condominium regime. This month I describe a extra complicated construction – the way to get the advantages of Part 420-a of N.Y.’s Actual Property Tax Legislation when the NFP occupies solely a portion of a constructing. Observe that this text discusses solely the fundamental construction. There will be quite a few particular circumstances that may even be acceptable.
First, the owner floor leases the property to a “Newco” which is often an affiliate of the owner. That lease must have a time period of at the very least 30 years in order to qualify as actual property below Part 339-e(11) of N.Y.’s Actual Property Legislation. Newco then submits the leasehold curiosity to a condominium regime via filings with the N.Y. State Division of Legislation (lawyer basic) and New York Metropolis’s Division of Finance.
As soon as the condominium is shaped, Newco deeds the unit within the leasehold condominium to be occupied by the NFP to the NFP. Observe that the deed transfers title to the leasehold condominium unit for the total time period of the leasehold property. By operation of regulation, the NFP will lose title to the condominium unit on the expiration of Newco’s floor lease. The NFP should be able to personal the unit and be obligated for condominium frequent costs for the lifetime of the bottom lease.
Whereas there may be actually numerous talent in navigating the authorized facet of the condominium paperwork, there may be additionally important talent in equating the monetary facets of what would usually be a 30-year lease right into a 30-year leasehold condominium. For instance, the bottom lease on Newco’s floor lease will get handed on as a condominium frequent cost however the NFP’s unit is just accountable for its proportionate share of such expense. One other instance: workplace leases typically have tenants paying will increase in working bills over a base. In a condominium construction, these bills are assessed in opposition to all unit house owners from the primary greenback.
In sum, the monetary facets of the connection want an in-depth evaluation and construction which is usually carried out by a complicated dealer and/or exterior advisor in session with the legal professionals and after a full evaluation of how the constructing operates. That train is likely to be essentially the most difficult side of the whole association.
The leasehold condominium should be managed by its board of managers. Whereas a typical NFP wishing to make use of a modest portion of a constructing could don’t have any need or leverage to acquire board illustration on the condominium’s board, bigger tenants could negotiate for that proper. We not too long ago negotiated a posh condominium declaration and by-laws which granted a really important minority condominium unit proprietor consulting and restricted approval rights. There are sometimes facet agreements with the NFP which cowl a few of these points if inappropriate for the condominium paperwork.
The complexities of the construction trigger important authorized, submitting and different prices to be incurred within the creation of a leasehold condominium. The time-frame to create the whole construction can simply take 9 months to a 12 months. The excellent news is that any tax abatement takes impact retroactively as of the date the NFP takes title and commences use of the area for its functions.
Thomas Kearns is a accomplice with Olshan Frome Wolosky LLP, New York, N.Y