Land-Lease Co-ops Gain Right to Renew Leases Before Expiration

Thousands of New York shareholders living in land-lease co-ops cheered recently when Gov. Kathy Hochul signed the Ground Lease Renewal Bill into law.

The new law, introduced in May by Assemblymember Ed Braunstein (D-Queens) and state Sen. Toby Stavisky (D-Queens), amends the Real Property Law to allow shareholders in land-lease co-ops to exercise the renew clause in their ground leases at any time, meaning they no longer have to wait for the renewalal date specified in the lease. Most leases are long-term, sometimes 99 years.

In a letter to Braunstein and Stavisky on Queens County Bar Association letterhead, Mark Hankin and Geoffrey Mazel, partners in their eponymous law firm, outlined the need for the legislation, noting that several Queens co-ops with fewer than 35 years remaining on their land leases were prevented from taking out conventional 30-year mortgages, which crippled apartment values and made them difficult to sell.

"Unfortunately," Hankin and Mazel wrote to the legislators, "the Fannie Mae underwriters are ignoring the fact that ground leases have a 99-year renewal clause (that) cannot be exercised until 2050, according to the ground leases. This technicality has hindered thousands of units of affordable co-op housing from obtaining conventional 30-year mortgages, which...is having a devastating impact on the affected communities... These bills simply give the co-ops the right to exercise their renewal rights at any time."

There are some 100 land-lease co-ops in New York City, home to about 25,000 people. These co-ops are buildings that don't own the land they stand on and therefore pay annual rent to the owner of that land. Today's spiraling real estate values have left numerous land-lease co-ops in a bind when their long-term leases expire and land owners seek sharp rent increases that mirror the high new value of land, especially in Manhattan.

The Carnegie House co-op, as reported by Habitat, is in such a bind, with its land lease set to expire in March 2025 and the land owners seeking to raise the annual rent from $4 million to $25 million. Shareholders in the middle-class co-op, located at 100 W. 57th St., are fearful that an unaffordable hike in their land rent will lead to the dissolving of the co-op and its conversion to rent-stabilized apartments. They're so fearful of this potential outcome, in fact, that they recently filed a lawsuit asking the state to establish how initial apartment rents will be calculated if negotiations with the land owner break down and the co-op is dissolved.

Two bills that would have put a cap on hikes in land rents failed to pass during the last legislative session. Those bills were vigorously opposed by the real-estate industry, which noted that land-lease co-ops tend to sell for 20% to 30% less than conventional co-ops, though they also face higher monthly maintenance to cover the land rent, as well as uncertainty when the land lease expires.

Zachary Steinberg, senior vice president of policy at the Real Estate Board of New York, summed up the industry's opposition: "It is simply bad public policy to give a legislative handout to the millionaire co-op owners who bought their homes at cut prices years ago with the full knowledge of these ground-lease arrangements."