Suddenly, controversial co-op bill gets new life

A contentious effort to change the rules for ground lease co-ops seemed to gain steam at the 11th hour, rattling the real estate industry.

In the final days of the legislative session, Sen. Liz Krueger amended a controversial bill that would limit ground-lease rent increases and allow co-op shareholders the right to renew.

Her action signaled that the bill, which had stalled, had a chance to pass. However, a matching Assembly measure had not emerged as of Wednesday afternoon. With the session expected to end Thursday or Friday, backers might have run out of time to get the measure through, as bills typically need three days to “age.”

The Real Estate Board of New York’s Zachary Steinberg called the amendments a “last-ditch hail mary to help this bill pass legal muster.” REBNY says the measure is still unconstitutional. 

Anita Laremont, a partner at Fried, Frank, Harris, Shriver & Jacobson and former head of City Planning, said that even with the changes, the bill violates the takings and contracts clauses. “They really did absolutely nothing to address the fundamental problems that the bill has,” she said.

But the amendments might have been made at the behest of legislators who were holding it up, indicating a path to approval in the Senate.

In co-ops where shareholders do not own the land underneath their building, they pay rent to the landowner under long-term lease agreements. The lease usually lasts 99 years, and the rent rates reset every 30 years or so.

A reset can cause a substantial increase in rent, jacking up monthly common charges for shareholders by hundreds or even thousands of dollars. 

To curb those rent hikes, shareholders in ground-lease co-ops hired numerous lobbyists to push the bill, which was introduced last year. Real estate groups called the measure an unconstitutional intrusion on private contracts.

The bill would limit annual rent increases on ground leases to 3 percent or the Consumer Price Index, whichever is greater. Co-op shareholders would also get the right to renew the ground lease and the right of first refusal if the landowner decides to sell the underlying property.

Krueger’s amended bill clarifies that the rent cap does not include increases to “additional rent,” such as maintenance fees, property taxes and other costs associated with the building. It also spells out a current law, which stipulates that if the owner of the underlying property and the cooperative cannot agree on a lease renewal, the units become rent-stabilized.

Dueling narratives around the measure have emerged. Proponents argue the bill would save co-op owners from massive ground-lease rent hikes. Opponents say it would be a windfall for wealthy co-op shareholders who were able to buy into their buildings at a steep discount precisely because of a looming increase in the ground rent.

Some of these wealthy shareholders have spent tens of thousands of dollars lobbying for the bill. Laremont said these units are not the “poster child” for affordable housing and are often rented out by their owners.

For example, the Kushner family bought three units at 269 West 87th Street in 2019. According to StreetEasy, all of the units were rented out in recent years, including one that was rented out last year after listing for $11,495 a month.

“It’s not doing anything to address the many housing challenges we have in New York,” Laremont said.

Sherwin Belkin, partner at Belkin Burden & Goldman, views the bill as part of a  “disturbing trend of legislative overreach.” He noted that, typically, the fee owner and the co-op are able to renegotiate leases rather than have the building revert to a rent-stabilized property.

A group advocating for the bill, the Ground Lease Coop Coalition, frames the issue differently, pointing to the number of middle-income shareholders staring down exorbitant rent increases. A survey by the group of co-ops found that a majority of ground lease co-op units are in Queens, followed closely by Manhattan.

One resident of a co-op in Queens told The Real Deal last month that she inherited her unit from her late mother and did not immediately realize there was a ground lease. She said she hoped the bill would provide “fairness, stability and affordability.”

The bill’s sponsors argue that the measure is similar to a 2019 law that capped ground rents for manufactured homes. Calls and emails to representatives of the bill’s sponsors were not immediately returned.

Paul Larrabee, a representative for the coalition, said he hoped that the issue would be taken up during a special session. Either way, the group plans to keep fighting for the measure this year.

“The housing and affordability crisis in New York State has not faded,” he said.

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