HAPPY NEW YEAR! This edition of our Condo/Co-op Digest takes one last look back at significant legislation from 2023 and looks forward to potential developments that might affect condominiums and cooperatives in the coming year.
As has been the case for the last several years, the New York City Council and New York State legislature have been extremely active – the latter reportedly passed 896 separate pieces of legislation in 2023 alone – making comprehensive summaries all the more difficult to prepare, yet all the more essential for those interested in the state of the law pertaining to condominiums and cooperatives.
What follows is a selection of important new legislation introduced in 2023 and a look ahead to some of what we are monitoring for 2024. As always, if you have any questions regarding the matters raised in this Digest, please feel free to contact Bill McCracken of our New York City office at wmccracken@moritthock.com, or your regular contact at the firm.
CLIMATE CHANGE LEGISLATION
Although New York City’s Climate Mobilization Act was passed in 2019, the most significant initial compliance burdens only kick in as of January 1, 2024, when covered buildings must begin measuring their carbon emissions against mandatory annual emissions limits.
The first step for condominiums and cooperatives subject to the law, therefore, is to make sure they are accurately measuring their carbon emissions and preparing to file timely reports next year, because building owners can face large fines for failure to file regardless of whether they are staying within their emissions limits.
* * *
In December 2023, the City of New York approved the “City of Yes for Carbon Neutrality” suite of zoning amendments designed to simplify the process for retrofitting buildings to implement green technologies and reduce carbon emissions sector-wide. Of particular relevance to condominium and co-op buildings, the amendments will remove existing prohibitions against installing certain renewable energy generation equipment in building yards and on rooftops.
* * *
The State of New York made headlines in 2023 for enacting a statewide ban on the use of fossil fuel equipment in new construction (note: this ban does not apply to existing buildings). This legislation, which was passed in accordance with New York’s Climate Leadership and Community Protection Act’s (the “Climate Act”) mandate to reduce 85 percent of greenhouse gas emissions below 1990 levels by 2050 and have 70 percent of New York’s power come from renewable sources by 2030, goes into effect in 2026 for new buildings of seven stories or less, and in 2029 for larger buildings. A lawsuit has been filed arguing that the ban is preempted by Federal law.
For developers in New York City, the State legislation is less significant only because New York City already passed a similar ban in 2021. In New York City, the use of fossil fuel equipment is already banned in most new construction under seven stories (and most new buildings over seven stories beginning in 2027).
* * *
As reflected in previous editions of our Condo/Co-op Digest, our team has significant expertise on climate change issues. As New York City continues to develop enforcement rules for Local Law 97, and the State of New York begins implementing aspects of its Climate Act in 2024, we will endeavor to keep our clients and friends informed of developments.
PARKING GARAGE INSPECTIONS
2023 saw the introduction of new inspection and repair requirements for parking garage owners in New York City, broadly similar to those required for facades under Local Law 11. The law requires that parking structure owners hire a Qualified Parking Structure Inspector, or QPSI, to examine the structure and prepare a report. Depending on the results of the report, the owner may be required to conduct immediate repairs and even temporarily shut down the garage.
Local Law 126 and its implementing regulations have created problems for condominiums because the law and rules make the “owner of the building” responsible to hire QPSIs, file reports, and conduct reports, etc., but of course the condominium does not “own the building.”
In any event, the Local Law 126 inspections follow a 6-year cycle rolled out in stages across the City. In 2022 and 2023, Manhattan Community Districts 1 through 7 (i.e., all of Manhattan below 59th Street plus the Upper West Side) were required to comply; the rest of Manhattan and all of Brooklyn are up in 2024 and 2025; and Queens, the Bronx, and Staten Island will file during the 2026 and 2027 period.
PARAPET INSPECTIONS
Local Law 126 also introduced new inspection requirements for building parapets. Starting January 1, 2024, every covered building owner must conduct an annual inspection of the building’s parapets to “determine their stability and identify potentially hazardous conditions.” These requirements are once again similar to, but different from, the façade inspection requirements under Local Law 11. Among other things, these inspections must be done each year, not every six years. Moreover, these inspection requirements are not limited to buildings over six stories, meaning thousands of buildings that have never had to comply with Local Law 11 will be required to perform these inspections. Fortunately for those building owners, the inspections may be conducted by a superintendent or handyman – as opposed to the licensed professionals required for Local Law 11 inspections.
LITHIUM-ION BATTERIES
The use of consumer lithium-ion batteries is an increasing fact of life in New York, as the market broadly shifts towards the use of electric vehicles (cars, e-bikes, and other mobility devices) as a mode of transportation. For building owners, this has created new (and arguably contradictory) safety and compliance challenges.
In 2019, for example, New York State passed a bill prohibiting condominiums from restricting the installation of electric vehicle charging stations. Buildings looking to install charging stations in their building can also benefit from multiple incentive programs (see here and here) designed to encourage the growth of lithium-ion battery charging infrastructure.
At the same time, New York City has seen an alarming rise in dangerous and even deadly fires caused by lithium-ion batteries. Most of these fires reportedly have been caused by uncertified aftermarket e-bike batteries being charged in unsafe conditions. Many condominiums and cooperatives have responded to this growing problem by limiting (or even banning) the storage of micromobility devices on site, and New York City passed a suite of legislation early in 2023 (summarized here) to try to mitigate the risks of battery fires in micromobility devices.
For 2024, building owners should expect more initiatives designed to encourage the use of lithium-ion batteries (at least as used in electric cars), similar to this bill requiring commercial garages to ensure public access to charging stations (a bill passed by the legislature but vetoed by Governor Hochul), as well as programs intending to reduce the risk of catastrophic battery fires, such as this pilot program to develop public charging hubs.
RETAINAGE LIMITS
When condominiums and cooperatives enter into contracts with vendors for large construction or capital improvement projects in their building, those contracts typically include a concept of “retainage,” which is a practice of holding back a portion of the contractor’s payment until certain milestones are achieved – most notably the final completion of the project.
In November 2023, the State amended Section 756-a of the General Business Law for the stated purpose of, among other things, “limit[ing] the amount of retainage to a maximum of 5% of the contract sum.” This is a significant change for many co-op and condominium boards that historically require a 10% or even greater retainage percentage in their construction contracts.
It should be noted that although the apparent intention of the law was to limit retainage provisions to 5%, there is some ambiguity as to whether the amendment drafters actually succeeded in their goal, because separate provisions of the General Business Law reserve the right to contract around the default provisions set forth in the law. At this early stage, it is not clear whether Section 756-a actually prohibits an agreed-upon higher retainage percentage.
OUTDOOR DINING STRUCTURES
For nearly four years, many condominium and cooperative buildings in New York City have played host to “temporary” outdoor dining structures originally authorized on an emergency basis in response to the COVID-19 pandemic. In 2023, the City Council passed Local Law 121 to establish a permanent outdoor dining program. The NYC Department of Transportation has proposed implementing regulations with new design criteria, which rules are expected to be adopted in early 2024.
Among other things, the new law provides that roadway structures will only be permitted to be installed between April 1 and November 29, rather than year-round, although the law does not specify whether these structures will need to be disassembled or just left unused. For now, existing roadway structures are “grandfathered” (even if they don’t comply with the new design criteria) so long as restaurant operators apply for consent under the new regime and remove/replace the existing structure before the earlier of (a) 30 days of a determination by DOT of the consent application or (b) November 1, 2024.
RESTRICTIONS ON SHORT TERM RENTALS
Short-term rental sites such as Airbnb, Vrbo, and Booking.com have long been controversial in New York City for many reasons. For condominiums and cooperatives, these platforms facilitate short-term rentals that often violate the terms of the proprietary lease or of applicable by-laws or house rules. These transient rentals also raise security concerns and can lead to nuisance conditions that have no direct remedy.
Last year, New York City began enforcing Local Law 18 in an effort to combat the proliferation of listings on these short-term rental platforms. Under the regulations adopted by the City, house or apartment owners may register their properties for legal short-term rentals, and building owners may register their buildings on a list of buildings in which short-term rentals are prohibited. Not only must all short-term rental hosts in New York register their property, they can only have up to two guests and they have to be present in the home during the stay. In a lawsuit filed by Airbnb in June (and subsequently dismissed in August), Airbnb called the legislation a “de facto ban.”
It remains to be seen whether Local Law 18 will sufficiently address the concerns that many cooperatives and condominium boards have about short term rentals. Although it is anticipated that New York City listings on Airbnb and similar platforms will continue to decline in 2024, there has been speculation that the law has only succeeded in driving the short term rental market fully underground, ironically making it more difficult to monitor and enforce building rules.
FLOOD RISK LEGISLATION
To address the increasing risks of catastrophic rainstorms and floods, the New York State legislature passed a pair of laws in 2023 intended to provide greater disclosure to purchasers and lessees of real estate in New York.
First, New York amended Section 462 of the Real Property Law to provide greater disclosure of flood risk on Property Condition Disclosure Statements, including information on the property’s flood insurance coverage, disclosure of being in a flood risk zone, and whether the seller has ever filed a claim for flood damage on the property. Importantly, sellers of cooperative or condominium apartments are not required to fill out the (existing or amended) Property Condition Disclosure Statements.
Second, the State legislature passed a flood risk disclosure statute providing that “[e]very residential lease” shall provide notice of whether any or all of the leased premises are located in a floodplain, 100-year floodplain, or 500-year floodplain, as well as of any relevant history of flood damage. Further, every lease must provide a standard notice advising the prospective tenant of the availability of federal flood insurance for the premises and a warning that the standard renter’s policy excludes coverage for flood damage. It is not clear whether the “lease” referred to in Section 231-b includes a cooperative’s proprietary lease. Assuming it does, it is not clear how a cooperative can “incorporate” this notice into the proprietary lease without the permission of a supermajority of the cooperative’s shareholders required to amend a proprietary lease.
CORPORATE TRANSPARENCY LEGISLATION
Increasing the transparency of ownership of corporate entities has been a significant source of legislative energy over the last several years. The Federal government’s Corporate Transparency Act (“CTA”), which goes into effect as of January 1, 2024, requires certain types of corporations, limited liability companies, and other entities to disclose information about their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), which is in turn authorized to turn that information over to governmental authorities and financial institutions under certain circumstances. The CTA does not contemplate disclosing the individual owners of these entities to the public at large.
In New York, the State legislature passed a similar but different disclosure bill, known as the New York LLC Transparency Act (“NYLTA”), in 2023. On the one hand, the bill would only apply to LLC entities, so in that sense it was narrower than the CTA. On the other hand, it would have established a searchable public database of beneficial ownership information. However, in the face of privacy concerns raised by the real estate industry, Governor Hochul and the legislation’s sponsors agreed to a deal late in December 2023 whereby the beneficial ownership information would be available only to law enforcement (and not to the broader public), aligning the NYLTA more closely with the CTA. This deal is contingent on legislative approval of the amendments in the January 2024 legislative session, and will become effective one year after the revised NYLTA passes.
Governor Hochul also vetoed a separate bill that would have required the disclosure of the beneficial ownership of any LLC that owns a building or property leased to the State.
PROHIBITION ON DISCRIMINATION ON THE BASIS OF HEIGHT OR WEIGHT
New York City passed Local Law 61 adding height or weight to the list of categories under the New York City Human Rights Law (“NYCHRL”) protected from discrimination in employment, housing, and public accommodations. For condominiums and cooperatives, this means that boards should take care not to discriminate on the basis of perceived height or weight not only when making hiring decisions, but also when evaluating potential new shareholders, unit owners, or tenants.
It bears emphasis that the list of protected categories and statuses under the NYCHRL is much longer than some might expect, and includes height, weight, age, immigration or citizenship status, color, disability, gender, gender identity, marital status and partnership status, national origin, the need for pregnancy and lactation accommodations, race, religion/creed, sexual orientation, status as a veteran or active military service member, arrest or conviction record, caregiver, credit history, testing positive for marijuana in a pre-employment drug test, unemployment status, sexual and reproductive health decisions, salary history, and status as a victim of domestic violence, stalking or sex offenses.
It should also be noted that for those outside of New York City, the State legislature is considering a similar bill for the January 2024 legislative session.
