Tax Abatements for Landlords Who Offer COVID “Recovery Leases” to Small-Business Tenants

Written By: Asher Rubinstein Craig S. Tarasoff

blue leasing binder with glasses and calculator on a table

New York State has assisted businesses suffering economic hardship from the COVID-19 crises by enacting legislation over the past few months granting eviction moratoria and relief to individual guarantors of commercial leases. A new bill is being considered by the legislature which may offer long-term property tax abatements to commercial landlords who agree to limit rent increases and settle arrears owed by commercial tenants who have been impacted financially by the pandemic.
Even as some businesses in New York City have reopened, many are still struggling with decreased revenues and an inability to keep up with expenses. Senate Bill 8904 would offer relief to small businesses (100 or fewer employees) by allowing New York City to adopt or amend legislation to provide an as-yet-undetermined abatement of real estate taxes to property owners who enter into “recovery leases” with their commercial tenants. A “recovery lease” is defined in the statute as one meeting the following five criteria:

  1. The recovery lease is entered into by an eligible commercial tenant and a property owner, where either the eligible commercial tenant or the property owner has suffered a financial hardship during the COVID-19 covered period, or both have suffered such a hardship;
  2. The recovery lease has a term of ten years or more;
  3. The recovery lease provides for annual rent increases that do not exceed the amounts permitted pursuant to a local law to be enacted for the purpose of setting such maximum increases;
  4. The recovery lease settles any rent arrears owed by the tenant pursuant to any previous lease agreement for the leased property; and
  5. The recovery lease includes any additional provisions that may be required pursuant to local law.

In essence, the legislation seeks to settle past rent arrears and limit rent increases over a long-term lease, while providing tax incentives to landlords who enter into such leases.
Commercial landlords remain limited in their ability to recover rent from commercial tenants who are suffering economically from the pandemic. These landlords, who are suffering economically due to their inability to collect rent, may soon have a tax incentive to negotiate payment terms with their tenants in a recovery lease.
Landlords considering entering into recovery leases should be mindful that they may not be entitled to tax abatements if the recovery lease is signed before the legislation is enacted. In addition, participating landlords should note that they could be subjecting themselves to a commercial rent regulation system with unknown consequences going forward.
The bill is currently in committee and has not yet been passed by either the New York State Senate or Assembly. The benefits to both commercial landlords and commercial tenants are apparent, but it will be critically important to review the details of any local law enacted by New York City to implement the property tax incentives should S8904 pass.
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about the authors

Asher Rubinstein


Asher Rubinstein's practice focuses on domestic and international asset protection, wealth preservation, estate planning, tax planning, tax controversy, offshore tax compliance, and related litigation. Mr. Rubinstein is a recognized expert on offshore entities, foreign banking, and IRS compliance issues. Mr. Rubinstein also represents and advises wine, spirits, food, and restaurant clients.

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