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HOT TOPICS IN LEASING

by

Nancy Connery, Esq. Schoeman Updike Kaufman & Stern LLP New York, New York

HOT TOPICS IN COMMERCIAL LEASING 2014

Copyright © 2014 Nancy Ann Connery All rights reserved.

Nancy A. Connery | Partner Schoeman Updike Kaufman & Stern LLP 551 Fifth Avenue, New York, NY 10176 (646) 723-1042 direct | (212) 661-5030 main (212) 687-2123 fax [email protected] | www.schoeman.com

HOT TOPICS IN COMMERCIAL LEASING 2014

SELECTED ISSUES IN INVOLVING NOT-FOR PROFITS

1. AMENDMENTS TO NOT-FOR-

a. Non-Profit Revitalization Act of 2013. The Non-Profit Revitalization Act of 2013 became effective July 1, 2014 (the “2013 Act”). b. Internal Consent Process. The 2013 Act facilitates the process of obtaining required consents. For example: i. Notices of meetings to members, member waivers of notices, member proxies, and member consents may be given by electronic mail. ii. Unanimous director consents and waivers of notices may now be given by electronic mail or in writing. iii. The provisions of the Not-For-Profit Law allowing directors to participate in meetings via conference telephone or similar communications equipment have been clarified and also expanded to add electronic video screen communication.

c. Related Party Transactions. i. “Related party” transactions are now subject to strict scrutiny. Board members need to consider the “related party” rules if they are in any way involved in the transaction at issue. ii. In addition, many not-for-profit must adopt policies governing conflicts of interest and policies protecting whistleblowers. d. Internal Approvals of Real Transactions Involving the Sale, , Exchange or Other Disposition of Real . i. Transactions Involving Less Than All or Substantially All of the Not-for- Profit’s Assets. Board approval requirements for transactions that do not involve the sale, lease, exchange or other disposition of all or substantially all of the corporation’s assets have been relaxed. 1. Under the 2013 Act, the purchase of need only be authorized by a majority of the Board of Directors (or a majority of a Board-authorized committee) unless the purchased property would, upon purchase, constitute all or substantially all of the assets of the corporation. 2. Under the 2013 Act, the sale, mortgage, lease, exchange or other disposition of the corporation’s real property need only be authorized by a majority of the Board of Directors (or a majority of a Board-authorized committee) unless the property constitutes all or substantially all of the corporation’s property. ii. Transactions Involving All or Substantially All of the Not-for-Profit’s Assets. If the real property, if purchased, would constitute all or substantially all of the corporation’s assets, or if the real property being sold, mortgaged, leased, exchanged or otherwise disposed of constitutes all or substantially all of the corporation’s assets, the old rules apply (a two thirds vote of the Board is required unless the Board consists of more than 21 people, in which case a majority vote is sufficient). e. Attorney General and Court Approval. If the transaction involves the sale, lease, exchange or other disposition of all, or substantially all, the assets of a charitable corporation, the corporation may now obtain the approval of either the Attorney General or the Supreme Court (formerly, court approval was required, with notice given to the Attorney General’s office) unless the corporation is insolvent or would become insolvent as a result of the transaction (in which event Supreme Court approval is required) or unless the Attorney General determines that a court should make the determination. i. Note that the amendments to the Not-For-Profit Corporation Law with respect to Court approval did NOT modify the requirements of the Religious Corporation Law as to religious corporations. f. Financial Reporting. i. Financial thresholds for independent CPA audit reports and review reports have been raised. ii. New requirements are imposed requiring the Board or an Audit Committee of any corporation required to file an annual audited financial report to, among other things, oversee financial reporting and review audit results. 2. SPECIAL CONSIDERATIONS: LEASES BY AND TO NOT-FOR-PROFITS a. Negotiation Process 1. Decision making power is often exercised by a group.

b. Due Diligence

i. Internal Approval Process

1. Voting and decision making processes may be informal.

2. Charter documents may be old-fashioned, with voting requirements unclear or impossible to comply with.

3. If quorum requirement, as a practical matter, can’t be met because of diminishing membership, the Supreme Court may be petitioned for a modification of the quorum requirement. N.Y. NPC Law § 608(e). If quorum requirements, as a practical matter, can’t be met because of the large size of the membership (in excess of 500 members), cost of mailing, and inability to send notice by e-mail, consider publication and posting. N.Y. NPC Law § 605(a). ii. Consider whether amendments are needed to the Charter or By-. iii. Approvals:

1. Not-for-Profit Lease of Property from Third Party.

a. No statutory requirement of a minimum Board vote or membership vote. b. Review corporation’s certificate of incorporation and by-laws.

2. Not-for-Profit Lease of its Real Property – Less Than All or Substantially All of the Corporation’s Assets.

a. Requires authorization by a majority of the Board of Directors (or a majority of a Board-authorized committee). N.Y. NPC § 509. b. Review corporation’s certificate of incorporation and by- laws.

3. Not-for-Profit Lease of its Real Property -- All or Substantially All of the Corporation’s Assets:

a. A two-thirds vote of the Board is required unless the Board consists of more than 21 people, in which case a majority vote is sufficient.

b. If members are entitled to vote on the transaction, the Board must adopt a resolution recommending the transaction and submit the transaction to the members for vote. By two-thirds vote, the members may approve the transaction according to the resolution or may authorize the Board to modify the terms of the transaction. If members are NOT entitled to vote on the transaction, then Board approval (see subpar. (a) above) will suffice.

c. Review certificate of incorporation and by-law requirements.

d. Attorney General or court approval required, unless the corporation is insolvent or would become insolvent as a result of the transaction (in which event Supreme Court approval is required) or unless the Attorney General determines that a court should make the determination.

e. After authorization, the Board may, at its discretion, abandon the transaction (subject to the rights of third parties to the transaction) without further action or approval.

f. See N.Y. NPC §§ 509, 510.

4. Religious Corporation/Disposition of Assets (including a Lease of Church Property for a Term Exceeding 5 Years):

a. General.

i. Although the Not-For-Profit Corporation Law is generally applicable to religious corporations, not all of its provisions apply to religious corporations. RCL 2-b provides that the Not-For-Profit Corporation Law applies to every Religious Corporation, subject to specified exceptions. RCL 2-b further provides that if there is a conflict between the Not-For-Profit Corporation Law and the Religious Corporation Law, the Religious Corporation Law prevails.

ii. Notices of Member Meetings and Proxies. Sections 603 (notice of member meetings) and 609 of the Not-For-Profit Corporation Law (proxies) do not apply to religious corporations.

b. Court Approval/Notice to AG.

i. Lease of Real Property By a Religious Corporation from a Third Party. Court approval and Attorney General approval are not required for leases by religious corporations of property. N.Y. RCL Section 6 specifically permits religious corporations to acquire property for, among other things, chapels, mission , school houses, for ministers, property for a for the aged, and property for a day care center. Any disposition, however, must be effected in accordance with the N.Y. RCL §12.

ii. Approval Required. RCL § 12(1) requires every religious corporation to obtain court approval pursuant to NFC Law § 511 (with notice to be given to the Attorney General) for each of the following transactions:

1. Sale of any of the church’s real property (except in connection with a ).

2. Mortgage of any of the church’s real property.

3. Lease of any of the church’s real property for more than 5 years.

iii. Internal Approvals.

1. For certain hierarchical churches, designated bodies or parties must approve the lease.

2. Generally, for those churches whose trustees or governing body are elected by the congregation, approval of the members will be required.

c. Certain Churches. RCL Section 2-B (d-1) exempts certain churches from the requirement that notice be given to the Attorney General, and RCL Section 12 (2) – (6) requires additional consents from the bishops, Presbyteries, etc. with respect to those churches. The churches include the Protestant Episcopal Church, Roman Catholic Church, Ruthenian Catholic Church, African Methodist Episcopal Zion Church, Incorporated Presbyterian Church, and the United Methodist Church. iv. Real Property Due Diligence

1. Confirm that the not-for-profit actually owns the property it is leasing.

2. Are there any restrictions on the use of the real property?

v. For religious corporations, will approval of the church hierarchy be required or desirable? c. Below Market Rents

i. It’s not unusual for a not-for-profit to grant a long term lease to a related not-for-profit whose activities support the activities of the owner of the real property.

1. Rent may be below-market. N.Y. RCL §12.

2. What if the tenant files for bankruptcy?

a. If the rent is deeply discounted, the lease may be very valuable. Bankruptcy courts generally have the power to order an of a tenant’s interest in a lease without the ’s consent to any entity, including a developer or for-profit entity. Generally, the not-for-profit landlord will be concerned about such a result.

b. Thoughts:

i. Set a fair market rent, with the tenant to receive a rent credit only for so long as the property continues to be leased by a not-for-profit tenant in accordance with the lease requirements. ii. Draft the court order authorizing the lease transaction to clearly limit approval to the tenant named in the petition and to require court approval of any assignment of the lease or sublease of all or substantially all of the premises. iii. Arguably an assignment of an approved lease with a term of more than 5 years constitutes a new lease of the religious corporation’s property requiring Supreme Court approval. Does the state law requirement trump the trustee’s right to assign? d. Use Restrictions

i. It’s not unusual for a not-for-profit granting a long term lease to limit the uses to which the property can be put. This may be a function of the proximity of the leased property to the church’s or not-for-profit corporation’s property or may constitute a quid pro quo for a reduction in the base rent.

ii. What if the tenant files for bankruptcy?

1. The Bankruptcy Code voids any lease provision that gives the landlord the right to terminate or modify the lease if the lease is assigned by the debtor/tenant or its trustee in bankruptcy. Bankruptcy Code §365(f)(3). This provision has been interpreted to invalidate any number of restrictions on assignment, including narrow use clauses. E.G., Robb v. Schindler, 142 B.R. 589 (D. Mass. 1992) (court refused to enforce profit recapture clause, citing cases invalidating various restrictions on transfer, including narrowly crafted use clauses that impeded assignment and clauses that increased rents to market rate upon assignment). There is the risk, therefore, that a bankruptcy court would invalidate an overly narrow use clause in order to facilitate an assignment of the lease in bankruptcy.

2. Thoughts: a. Explicitly describe in the lease the nature of the special relationship, if any, between the tenant and landlord. b. Draft the court order authorizing the lease transaction to clearly limit approval to the proposed use. c. Arguably an assignment of an approved lease with a term of more than 5 years constitutes a new lease of the religious corporation’s property requiring Supreme Court approval. Does the state law requirement trump the trustee’s right to assign? d. Limit the property’s use with a Declaration of Restrictions.

3. REAL ESTATE TAX EXEMPTION

a. Property Owned by Not-For-Profit. Real property owned by a corporation or association organized or conducted exclusively for charitable, educational, religious, hospital, or moral or mental improvement (an “exempt property owner”) that uses the property exclusively for such purposes is exempt from real estate taxes. N.Y. Real Law § 420-a. Other exempt purposes are set out in N.Y. Real Property Tax Law § 420-b, 446, and 462.

i. If the exempt property owner leases a portion of the property to a commercial enterprise, its exemption will be lost as to the portion so leased.

1. To avoid transferring the exempt owner’s tax exemption to the commercial tenants, the lease will typically require each commercial enterprise to pay its share of increases in the ’s real estate taxes (or its share of such taxes as a direct pass- through), computed as if the property was not benefitted by the property owner’s tax exemption.

ii.If the exempt property owner leases a portion of the property to another corporation or association organized or conducted exclusively for charitable, educational, religious, hospital, or moral or mental improvement for such tenant’s exempt purposes, the exempt property owner may retain its exemption as to the leased property but only if the rent payable by the tenant does not exceed normal carrying, maintenance, or depreciation charges with respect to the leased portion of the property. b. Property Owned by a For-Profit Entity and Leased to a Charitable Corporation.

i. Generally, a For-Profit entity that leases real property to a Not-For-Profit entity is not entitled to a real estate tax exemption with respect to the Not- For-Profit’s .

ii. Some Techniques For-Profit and Not-For-Profit Tenants Have Used to Allow the Not-For-Profit Tenant to Obtain the Benefit of Its Exempt Status: 1. Symphony Space. a. Symphony Space Inc. v. Pergola , Inc., 88 N.Y.2d 466 (1996) b. Property owner conveyed office building to a Not-For- Profit for nominal , was granted a lease at a nominal rent for the portion of the building not occupied by the Not-For-Profit, and was given an option to reacquire the entire building at the end of a specified period of time. The owner lost the building to the Not-for-Profit because of a Rule against Perpetuities issue that voided the purchase option. i. Very risky. 2. Leasehold – Ground Lease. a. For-Profit owner ground leases its property to a Not-For- Profit that constructs improvements. b. The Not-For-Profit converts its to a leasehold condominium with fee of the improvements. c. Condominium units are separately assessed and taxed under NY Condominium Law § 339-y. i. Note that there may be a lapse in time between the formation of the condo and creation of separate tax lots. d. See NYC Dept. of Finance Letter Ruling dated February 13, 2009. i. Lease was for 35 years with renewal options. ii. Tenant owed in fee the building. iii. Leasehold condo unit tax exempt if §420-a criteria otherwise met. e. What if Not-For-Profit Acquires Leasehold Estate Through a Non-501(c)(3) Entity Owned by a Not-For-Profit i. If a leasehold estate is acquired for use by a Not- For-Profit for its exempt purposes, but the leasehold estate is held in the name of a single-member limited liability company owned by the Not-For- Profit (e.g., for financing or liability reasons), is the leasehold condominium unit still exempt from tax? ii. There are a number of letter rulings from the Department of Finance indicating that property owned in fee by a limited liability company (that is not a 501(c)(3) entity) owned solely by an exempt entity and used by the exempt entity for its exempt purposes, may be exempt from real estate taxes. Would the Department of Finance apply the same reasoning to a leasehold estate? iii. Note that the letter rulings set out a number of criteria that must be met, including the following: 1. The sole member of the LLC must qualify for a 420-a exemption; 2. The limited liability company’s articles of organization and operating agreement must contain specific language relating to the company’s not-for-profit purposes. 3. There must be commonality between the LLC and its member. 4. The property must be managed and maintained by the single member or leased to another not-for-profit entity that would qualify for an exemption. 5. The rent can’t exceed carrying, maintenance and depreciation charges. 6. Upon termination of the LLC, the property must revert to its single member or another exempt entity. The LLC must continue to be owned by an exempt entity. 7. An annual affidavit must be filed with the Department of Finance.

HOT TOPICS IN COMMERCIAL LEASING 2014

Restaurant Leases

Copyright © 2014 Nancy Ann Connery All rights reserved.

Nancy A. Connery | Partner Schoeman Updike Kaufman & Stern LLP 551 Fifth Avenue, New York, NY 10176 (646) 723-1042 direct | (212) 661-5030 main (212) 687-2123 fax [email protected] | www.schoeman.com

HOT TOPICS IN COMMERCIAL LEASING 2014

RESTAURANT LEASES

1. DUE DILIGENCE A. LIQUOR i. Location may be an issue ii. Community Board approval iii. Application to State Liquor Authority iv. Cooperation of landlord v. Possible termination right B. HEALTH DEPT. i. Food Service Establishment Permit. C. DEPT./FIRE DEPT. i. Public assembly permit (if 75 or more persons indoors; or 200 or more persons outdoors) (NYC) ii. Possible Landmarks approval (NYC) iii. and Certificate of Occupancy 1. Certificate of Occupancy (or amendment) required? 2. Possible barriers to Certificate of Occupancy A. Violations B. Open Buildings Dept. permits iv. Consumer Affairs (NYC) 1. Cabaret license (if there’s music, dancing) D. PHYSICAL DUE DILIGENCE i. Electric 1. Adequacy of electric 2. Direct meter ii. Water 1. Submeter 2. Cost iii. HVAC iv. Availability of Gas v. Availability of Steam vi. Drainage/sewer vii.Venting E. ADA AND ACCESSIBILITY i. What if entrance is not accessible and can’t be made accessible ii. Indemnification F. SIGNAGE RIGHTS AND STOREFRONT G. SIDEWALK CAFES/PATIOS/OUTDOOR AREAS

2. ASSIGNMENT AND SUBLET A. Investors will need ability to freely transfer interests. Landlord will want the person who is the driving force behind the restaurant to retain a minimum equity interest and to retain operational control. B. and licensing rights. C. Franchising rights. D. Right to sell to a public company. E. No profit recapture. F. No space recapture. G. Death, incapacity, transfers to trusts f/b/o named person and family members, so long as the principal retains control of operations H. Sale of business may be effected by assignment or subletting. i. Subletting – non-disturbance agreement ii.Assignment – ability to come back in and cure

3. FINANCEABILITY OF LEASE A. Financing agreements for equipment purchases B. Access agreement for lender. C. Right to collaterally assign lease to lender i. Mortgage tax

4. USE A. Flexibility of use desirable

5. INSURANCE A. Commercial General Liability: Serious coverage i. Mountain States Mut. Cas. Co. v. Roinestad, 296 P.3d 1020 (Colo. 2013). sewer explosion caused by buildup of sewer gas arising from buildup of grease not covered by commercial general liability insurance, which excluded damage arising from discharge of pollutants B. Property Damage Insurance C. Business Interruption Insurance D. Plate Glass Insurance E. Liquor liability insurance F. Increases in fire insurance rates

6. CASUALTY A. Tenant has obligation to rebuild restaurant. B. Who gets tenant’s insurance proceeds if tenant terminates the lease?

7. RENT A. Possible percentage rent I. Restaurant located in a or shopping center where significant business is generated by building operations. B. Operating Expense Escalations/Pass-Throughs C. Real Estate Taxes Escalations/Pass-Throughs

8. QUALITY OF LIFE ISSUES A. Use of balance of building B. Dealing with noise, odor, and vibration i. Landlord ability to intervene ii.Immediate measures to ameliorate problems iii.Permanent solutions iv.Tenant indemnification of landlord against lawsuits C. Pest control D. Garbage i. Refrigeration of garbage ii.Regulation of garbage pickups iii.When garbage can be left on street (NYC)

9. OWNER REPAIRS AND SERVICES A. Owner obligations probably limited. B. Tenant may be required to assume responsibility for sewer and water connections to street if lines exclusively serve the leased premises.

10. SNDA

11. GOING DARK/CONTINUOUS OPERATION

12. RESTORATION AT END OF LEASE

A. What has to be removed i. Trade fixtures ii.Other alterations and installations iii.Any required notice from landlord iv.Trademarked items

February 13, 2009

Re: Request for a Ruling Real Property Tax Law § 420-a Exemption FLR-08-4886

Dear Mr. :

This is in response to your request dated February 21, 2008, on behalf of for a letter ruling regarding the application of § 420-a of the Real Property Tax Law (“RPTL”) to a leasehold condominium, created by on an underlying ground lease. On November 3, 2008, attorneys from the law firm of submitted a Memorandum of Law, setting forth additional information concerning the structure of this transaction. On December 31, 2008, pursuant to a request by the Department of Finance (“Finance”) you submitted to Finance, selected articles from the June 6, 2007 ground lease (the “Lease”) entered into between and .

FACTS:

The facts that we have relied upon for this letter ruling are based on the Memorandum of Lease dated June 6, 2007, selected articles from the June 6, 2007 Lease submitted to Finance, as well as representations made by in the above mentioned Memorandum of Law dated November 3, 2008. At the time of application for exemption, additional documentation may be requested to verify those actions yet to be taken by in support of the exemption request.

is a not-for profit corporation organized or conducted for educational purposes, and is exempt from federal income tax pursuant to section 501(c)(3) of the Internal Revenue Code. is currently a tenant pursuant to the Lease of premises located at . The Lease has a base period of thirty-five years and has the option to extend the Lease for six 10 year periods. Pursuant to the Lease, has a leasehold interest in the land (the “Land”) and has acquired to the improvements (the “Improvements”). Section 5.1(b) of the Lease provides that “[t]he parties acknowledge that following completion of any New Improvements, Tenant shall hold title to the Improvements until the expiration of the Term.”

is in the process of completing a reconstruction of the entire building located at Street (including the construction of additional floors). has advised Finance that expects to spend approximately 80 million dollars in order to convert the building from a parking garage into a first- class research laboratory. The Lease further provides that is solely responsible for all maintenance and property related expenses including paying all taxes assessed against the property. Page 2, Real Property Tax FLR No: 08-4886

The Lease grants the right to use the property for any legally permitted uses other than residential and has indicated that intends to utilize the property for general office, medical research and education uses. The Lease further provides that may create a leasehold condominium and indicates that intends to create a leasehold condominium comprised of two (2) units, which units will be owned in fee for the term of the Lease.

ISSUE:

May a real property tax exemption pursuant to § 420-a of the RPTL be granted to property owned by that is in the form of a leasehold condominium, where the condominium declaration requires the unit owner to pay all taxes attributable to its units?

CONCLUSION:

Based upon applicable law regarding leasehold , real property owned by in the form of a leasehold condominium including the leasehold of the land will be eligible for an exemption pursuant to § 420-a of the RPTL.

LAW:

RPTL § 420-a provides a tax exemption for mandatory classes of nonprofit organizations in pertinent part as follows:

[r]eal property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes or for two or more such purposes, and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association as hereinafter provided shall be exempt from taxation as provided in this section.

Article 9B of the Real (“RPL”) the “Condominium Act” governs the creation, characteristics and management of condominiums. Specifically § 339-e, of the RPL provides the following relevant definitions:

Subdivision 2. “Common elements” unless otherwise provided in the declaration, mean and include: (a) the land on which the building is located …and (h) all other parts of the property necessary or convenient to the existence, maintenance and safety or normally in common use…

Subdivision 5. “Common interest” means the (i) proportionate, undivided interest in absolute, or (ii) proportionate undivided leasehold interest in the common elements appertaining to each unit, as expresses in the declaration…

Subdivision 11. “Property” means and includes the land, the buildings and all other improvements thereon, (i) owned in fee simple absolute, or (ii) in the case of a condominium devoted exclusively to non-residential purposes, held under a lease or sublease, or separate unit leases or subleases, the unexpired term of which on the date of the of the declaration shall not be less than thirty years…

Page 3, Real Property Tax FLR No: 08-4886

Subdivision 14. “Unit” means a part of the property intended for any type of use or uses, and with an exit to a public street or highway or to a common element or elements leading to a public street or highway…

Subdivision 16. “Unit owner” means the person or person owning a unit in fee simple absolute or in the case either (i) of a condominium devoted exclusively to non-residential purposes or (ii) a qualified leasehold condominium owning a unit held under a lease or sublease.

In addition, RPL § 339-g provides that “each unit, together with its common interest, shall for all purposes constitute real property.”

Finally, RPL § 339-y (1) (a) which governs taxation of condominiums, provides in pertinent part that:

With respect to all property submitted to the provision of this article…each unit and its common interest…shall be deemed to be a parcel and shall be subject to separate assessment and taxation by each assessing unit… except that the foregoing shall not apply to a unit held under lease or sublease unless the declaration requires that the unit owner to pay all taxes attributable to his unit.

ANALYSIS:

is a not-for profit corporation, organized or conducted for educational purposes. The property in issue will be used by to carry out its educational and scientific exempt purposes. As the specifically requires ownership of real property by a corporation or association organized for exempt purposes, the sole issue is whether ownership of condominium units in the form of a leasehold condominium, constitutes ownership of real property for purposes of § 420-a of the RPTL.

Under the Condominium Act, a condominium unit, which is devoted exclusively to a non-residential purpose, can be formed on property held by a condominium declarant either in fee or under leasehold with a remaining term of 30 years or more. has entered into a lease with for a minimum term of 35 years, whereby will own the building located at Street and have a leasehold interest in the land. During the term of the lease on the land, will utilize the property for general office, medical research and education use. As a result, each condominium unit will be condominium units devoted exclusively to non-residential purposes. Therefore, the land held under the leasehold will be deemed to be property for purposes of the RPTL.

Once the contemplated declaration is filed, will own two units in fee simple for the term of the lease. Generally, the condominium form of ownership is manifested as a division of a single parcel of real property into individual units and common elements in which an owner holds title in fee to his individual unit as well as an undivided interest in the common elements of the parcel. See, Murphy v. State of New York 14 A.D. 3d 127, 787 N.Y.S. 2d 120 (2d Dept. 2004). The condominium ownership interest for units will include title to each unit and the unit’s respective common interest, including an undivided percentage interest in the common elements, which includes the underlying leasehold of the land. Consequently, since RPL § 339-g provides that each unit, together with its common interest, constitutes real property, it follows that the underlying leasehold of the land constitute real property for purposes of RPTL § 420-a.

With regard to separate taxation, the Lease provides that is required to pay the taxes assessed on each of its units. Pursuant to RPL § 339-y (1) (a) each unit and its common interest is deemed to be a tax parcel. Accordingly, the tax parcel, which is subject to assessment, will consist of the unit and its common interest including the leasehold of the land. As a result, Finance will be required to assess each unit together Page 4, Real Property Tax FLR No: 08-4886 with its common interest in the leasehold as a single tax parcel. Hence, as the owner of two units in the leasehold condominium will be assessed the full value of each unit, which will include the unit’s pro rata share of all of the common elements, one of which is the land.

RPTL § 420-a provides an exemption for real property owned by a corporation or association organized or conducted for an exempt purpose provided the property is used to carry out such exempt purpose. Consequently, a not for profit that does not own the property but is merely a lessee pursuant to a long term lease is not eligible for an exemption. However, we have determined that as the owner of two (2) condominium units created on an underlying ground lease with a term of 35 years or more is eligible for exemption from taxation pursuant to RPTL §420-a.

To receive its exemption will be required to file an application with the Exemption Unit. If the documents and facts presented at the time of the application are consistent with the representations made to Legal Affairs for the purposes of this letter ruling, the tax parcels consisting of the condominium units and their respective common interests should be granted an exemption pursuant to RPTL § 420-a.

Notwithstanding the analysis and conclusions discussed above, Finance reserves the right to review the information submitted.

Very truly yours,

Dara Jaffee Assistant Commissioner Legal Affairs Division

HGT:hgt