Like every other aspect of life in New York over the past year, real property leasing, lending, and sales have been turned upside-down by the Covid-19 pandemic. Countless tenants and property owners have failed to pay full rent or mortgage payments, but have been protected from immediate dispossession through at least August 31, 2021 by a combination of executive orders and legislation. While trials have resumed in New York City, a growing backload of foreclosures and evictions continue to be held in abeyance. Many offices and commercial establishments that emptied out as a result of closure orders, job losses, work-from-home arrangements and rising vacancy rates, raised questions about lasting changes to New York’s office stock and streetscapes. Commercial real estate lawyers are anxiously wondering what the coming months will hold in store. This article will briefly examine some recent developments on the legislative and litigation fronts that may be consequential for the commercial real estate law bar.
On the legislative front, as of this writing, the Governor has signed a $212 billion budget bill for the 2022 fiscal year (the “2022 budget”). This budget, criticized by some as a “tax-and-spend boondoggle,” nevertheless failed to implement several measures that had been dreaded in many real estate circles:
- First, the 2022 budget does not include the so-called mezzanine recording tax. This tax, the latest incarnation of which was introduced in the State legislature earlier this year, would create a new section 291-k of the Real Property Law that would require the recording of a mezzanine loan or preferred equity investment (in the latter case, if there is a special, preferred or accelerated rate of return) concurrently with the recording of a mortgage on the subject real property located in New York. This legislation would also require the payment of a mortgage recording tax (on the amount of the loan or investment) at the same rate as applicable to the recording of a mortgage on the property (under a new proposed section 253(4) of the Tax Law). Failure to record and pay the tax may mean that the lender would not have a perfected security interest and would not have the right to enforce its lien on the collateral (under UCC section 9-601(h)). The mezzanine recording tax, in its current and former iterations, has been widely criticized as unworkable by the real estate law bar, and fiercely opposed by industry groups.
The Practical Real Estate Lawyer
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