Real Estate Alert

December 2014

The NYC Fair Wages Act: Tips for Businesses Leasing or Seeking to Lease Space in New York City

On September 30, 2014, New York City Mayor Bill de Blasio signed an executive order (the "Executive Order") that increases the living wage hourly rate under New York City's Fair Wages for New Yorker's Act. The wage increase covers workers employed at economic benefit projects that receive more than $1 million dollars in subsidies from the City and has expanded the law to cover additional employers. The law is effective immediately, however, it is not retroactive and does not apply to projects which were awarded subsidies prior to September 30, 2014.

Living Wage Rate Increase
Specifically, the Executive Order requires employers who employ individuals at economic benefit projects that receive more than $1 million dollars in subsidies from the City to pay their employees at least $11.50 per hour if the employer provides health insurance and at least $13.13 per hour if the employer does not provide health insurance. The living wage rate will be adjusted each year by the Commissioner of Consumer Affairs.

Commercial Tenants of Subsidy Recipients are Covered under the Law
The Executive Order applies to all "Subsidy Recipients" as well as all tenants, subtenants, leaseholders, subleaseholders, and concessionaires of the Subsidy Recipient that occupy property improved or developed as part of a New York City economic benefit project. The Executive Order defines "Subsidy Recipient" as any entity or person that receives financial assistance of $1 million dollars or more as part of an economic benefit project or any assigned or successor in interest of such real property.

Commercial tenants that lease space from a "Subsidy Recipient" are covered under the Executive Order and must pay their workers the living wage rate of at least $11.50 per hour if they provide health insurance, and at least $13.13 per hour if they do not provide health insurance.

However, since the Executive Order applies on a going forward basis it does not apply to commercial tenants that are currently leasing space in a City-subsidized project. Moreover, small businesses with gross income below $3 million are exempt from the law.

Tips on Lease Language
When entering into new leases, commercial tenants may want to protect themselves by adding certain provisions to their lease documents to clearly address the Executive Order as it applies to:

  • the building in which the leased premises are located,
  • the economic terms of the lease, and
  • required notifications in the event the landlord become a subsidy recipient

Proposed Rule Change to 421-a Tax Exemption
The New York City Department of Housing Preservation & Development has proposed a change to the 421-a Rules relating to the current ability to amend an approved building permit. In order to grandfather a project under the current 421-a law, you must “commence construction” by June 15, 2015, which requires that you begin work on a building’s foundations and also obtain a full building permit. The 421-a rules currently allow the building permit to be amended at a later date (without affecting the original commencement of construction date) in order to permit an increase in the size of the building by up to 35% of its original size. This proposed rule change makes this limitation applicable to only those projects that were affected by a 2008 change in the 421-a statute. If the rule is passed, other projects that are already located in the Geographic Exclusion Area should not be affected by this provision.

For more information on 421-a related matters, please contact:
Mitchell Korbey at [email protected] or 1 + 212 592 1483

New Rule Requires Residential Leases to Have a Sprinkler Maintenance Notice
As of December 3, 2014, a new state law went into effect which requires disclosure in bold face type in all residential leases as to whether or not the premises have an operative sprinkler system. The language places a burden on landlords of all residential units, not just regulated units, to change their form of leases and to keep careful sprinkler maintenance records in order to insert them into each new lease and each renewal. The statements should also be accurate such that if there is an operating sprinkler and the lease states that there isn't one, or if none is operating and the lease states there is one in operation, it is conceivable that the landlord could be held liable for damages to the extent the lease is inaccurate.

The statute is burdensome for cooperatives, because in order to amend their leases, a vote of shareholders is necessary. Also, anyone subletting residential units may run into a problem because he has no specified right to obtain information concerning sprinklers. Presumably these issues will lead to some litigation.

For more information on this issue, please contact:
Douglas Heller at [email protected] or +1 212 592 1454 Reports on the Terrorism Risk Insurance Act's Delayed Renewal
Herrick's Alan Lyons was quoted on Congress' delay in renewing the Terrorism Risk Insurance Act (TRIA) and how the commercial insurance industry is responding to the uncertainty. TRIA, signed into law in 2002 and extended in 2005 and 2007, created a federal backstop for insurance claims related to acts of terrorism. Alan said, "As the December 31, 2014 expiration date looms closer without definitive action from Congress, a certain level of frustration is developing in the insurance industry due to the lack of certainty as to whether TRIA will be renewed and, if so, on what terms."

Shortly after this article was published, numerous media outlets reported on the debate between Jeb Hensarling (R-Texas) and Chuck Schumer (D-NY) regarding the terms of the bill. The following agreements have been reported: (1) a 6 year extension of TRIA and (2) raising the threshold which would bring government backing from $100 million to approximately $200 million.

While it seems that the terms of TRIA's renewal have largely been agreed upon, other provisions in the bill are still being debated including a fix to Dodd-Frank and a possible presidential appointment of a community banking expert to the Federal Reserve Board.

TRIA is currently due to expire on Dec. 31.

For more information on TRIA or other commercial real estate insurance or reinsurance matters, please contact:
Alan Lyons at [email protected] or +1 212 592 1539

© 2014 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.