NYREJ Publishes Article by Thomas Kearns on Industrial Leasehold Condominium Fundamentals
New York Actual Estate Journal printed an article on November 22 authored by Olshan Actual Property accomplice Thomas Kearns entitled “Industrial Leasehold Condominium Fundamentals – Half 2” (by subscription).
A 2018 column of mine for this publication outlined the fundamentals of business 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 Regulation when the NFP occupies solely a portion of a constructing. Word that this text discusses solely the essential construction. There will be quite a few particular circumstances which may even be acceptable.
First, the owner floor leases the property to a “Newco” which is usually an affiliate of the owner. That lease must have a time period of at the least 30 years in order to qualify as actual property beneath Part 339-e(11) of N.Y.’s Actual Property Regulation. Newco then submits the leasehold curiosity to a condominium regime by filings with the N.Y. State Division of Regulation (legal professional common) and New York Metropolis’s Division of Finance.
As soon as the condominium is fashioned, Newco deeds the unit within the leasehold condominium to be occupied by the NFP to the NFP. Word that the deed transfers title to the leasehold condominium unit for the complete 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 have to 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 ability in navigating the authorized aspect of the condominium paperwork, there may be additionally vital ability in equating the monetary points 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 barely 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 towards all unit house owners from the primary greenback.
In sum, the monetary points of the connection want an in-depth evaluation and construction which is usually completed by a classy dealer and/or outdoors advisor in session with the attorneys and after a full evaluation of how the constructing operates. That train may be essentially the most difficult side of your entire association.
The leasehold condominium have to be managed by its board of managers. Whereas a typical NFP wishing to make use of a modest portion of a constructing could haven’t any need or leverage to acquire board illustration on the condominium’s board, bigger tenants could negotiate for that proper. We just lately negotiated a fancy condominium declaration and by-laws which granted a really vital minority condominium unit proprietor consulting and restricted approval rights. There are sometimes aspect agreements with the NFP which cowl a few of these points if inappropriate for the condominium paperwork.
The complexities of the construction trigger vital authorized, submitting and different prices to be incurred within the creation of a leasehold condominium. The timeframe to create your entire 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