A recent bill introduced in the State house in Albany could reshape key aspects of cooperative board governance, raising questions surrounding its implementation and legal ramifications. Assembly Bill A2619A focuses on ground lease reform, an issue with major financial implications for residential co-ops situated on leased land. 

In ground lease buildings, shareholders own the shares allocated to their apartments, but not the land beneath their building. Historically, if a co-op's ground lease expired, the land and the building reverts entirely to the private landowner, potentially evicting hundreds of shareholders and wiping out their equity. 

Under these long-term leases, “Shareholders pay ground rent to a private landowner,” explains Leah Bloomberg, partner at New York law firm Vallely Mitola Ryan PLLC. “As land values have surged, many landowners have demanded rent resets at renewal rates that are financially untenable for shareholders, which could mean default and/or displacement,” she says. Compounding the problem, many ground leases contain provisions blocking the co-op from borrowing money for capital repairs without the underlying landowner’s consent, which leaves buildings unable to maintain themselves, even when shareholders want to fund the work.

Ground Leases 101

While it might seem counterintuitive to buy an apartment in a building where you don't even own the dirt beneath it, there are about 100 such co-ops scattered across New York City. This potentially thorny real estate structure usually happens for one of three reasons: tax advantages for the landowner, cost savings for the building’s original developer, or because the underlying land is owned by the government. 

Historically, many prime plots of land in NYC were owned by wealthy private families, real estate dynasties, or massive institutions like universities or religious organizations. If these owners sold their land to a developer outright, they would be hit with hefty capital gains taxes. By leasing the land to a co-op corporation for 99 years (the gold standard term for ground leases) instead of selling it, the owner could avoid the tax hit, retain a generational asset for their heirs, and secure a guaranteed, predictable stream of monthly ground rental income for decades. 

For real estate developers, buying the dirt on which to build is often the single most expensive part of a project. Leasing that land instead of buying it can dramatically reduce a residential project’s upfront costs. This discount is then passed down to the initial buyers, allowing them to buy a larger home in a location that they otherwise couldn't afford upfront. Even today, apartments in land-lease buildings often list at 20% to 35% below market value compared to comparable apartments in non-lease buildings.

Finally, in some cases, the “private” landowner is actually a public or quasi-public entity. Neighborhoods like Battery Park City and Roosevelt Island are entirely built on land leased from the City or State of New York. In these cases, the government uses long-term ground leases as a tool to control urban planning, set architectural standards, and generate revenue for public infrastructure through payments in lieu of taxes (PILOT) programs.

What’s the Catch? 

When these deals were made in the 1950s, 60s, and 70s, a 99-year lease felt like an eternity. It was generally assumed that when the clock ran down, future generations would simply renegotiate. Instead, as the value of land in prime locations across the city spiralled upward, corporate entities bought up many of these underlying land rights as speculative investments—and are now using the threat of lease expiration to demand 1,000% rent hikes from the tenant co-op boards, or even refusing to renew leases at all and threatening to seize the physical building entirely. 

According to Attorney Marc Schneider, Managing Partner of Schneider Buchel LLP, this has become an obvious—and growing—existential problem for affected cooperatives, with co-op shareholders either forced to shoulder huge maintenance increases to cover the raised rent, or sticking them with unsellable apartments, evaporating years of equity overnight. 

“As the ground lease expiration nears, a co-op without an automatic renewal provision, or with [a lease] that can trigger significant increases in ground rent and maintenance, can place the co-op and its shareholders in a very troubling place,” Schneider says. “It’s not as much of an issue when there are decades left on a ground lease, but as they get closer to the expiration of their term, co-op apartment values significantly reduce, and can even get to a point where no lender will lend and no buyer will purchase a unit in the building for fear of the ground lease not being renewed.” 

Enter Assembly Bill A2619A. According to nysenate.gov, the bill is designed to provide new protections for the residents of these cooperatives by addressing the concerns that often arise when a ground lease nears expiration or is subject to renegotiation—which is when the landowner may attempt to cash in on the appreciated value of the parcel. 

Right of First Refusal 

A2619A spells out a few things for co-ops facing ground lease termination. If the landowner opts to not renew the lease, the cooperative corporation must dissolve within 10 days, and the current shareholders are legally deemed rent-stabilized tenants. The landowner would then be forced to offer them standard rental leases governed by the Emergency Tenant Protection Act or Good Cause Eviction laws.

If a ground lease owner decides to market the land for sale, the co-op corporation is granted the Right of First Refusal, giving the board 120 days to match any bona fide purchase offer and buy the land outright themselves. The bill also gives co-ops the right to take out loans and encumber their lease interests unless expressly forbidden by the lease, and landlords cannot unreasonably withhold consent.

According to Bloomberg, “In its original form, the bill would have capped annual ground rent increases at 3% or the consumer price index (CPI), whichever is greater,” she explains. “The amended version dropped the rent cap, but gives co-ops the right of first refusal if the landowner wants to sell the underlying land. It also guarantees reasonable initial rents in a deconversion scenario, and overrides lease restrictions on borrowing for capital improvement purposes, such that landowner consent would only be required for reasonable cause and subject to a written explanation.”

According to Mark Levine, a principal with New York City property management firm EBMG, this can be a positive for buildings under a ground lease arrangement, though he emphasizes a few points that can help mitigate concerns on the bank’s part. Of the right of first refusal, he says that “Allowing the corporation to have 120 days to match any offer can help to give the shareholders an opportunity to remain in their buildings, should they be able to raise the capital to do so.” 

Legal Challenges

There is also a live constitutional challenge, says Bloomberg. “The Real Estate Board of New York (REBNY) and several real estate attorneys have argued that the bill unconstitutionally impairs existing private contracts—and that argument is unlikely to disappear even if the bill becomes law. There is also the question of who the bill actually benefits.” 

Supporters point to middle class shareholders on fixed incomes in outer borough buildings who face risk of displacement. Critics counter that the bill could equally, or even more so, benefit wealthy shareholders in high-value Manhattan buildings who bought in at discounted prices with full knowledge of the ground lease structure.

Financial Considerations 

On the issue of residents staying after the sale and rent regulation, Levine says residents would be treated as rental tenants, “so presumably any collateral that the mortgage bank on the personal shares may disappear, but the residents themselves would be treated as tenants with a right to stay after the fact. By limiting rent increases, there’s safety and security on the monthly expense side, but that does not help that they would also simultaneously lose their shareholder status and possibly the benefits of the mortgage and maintenance.”

Banks may be more willing to lend in this environment, knowing that there is a measure to assist the tenants of the building, but for either an underlying mortgage on the property or for a personal mortgage tied into the shares, there is a lot of uncertainty that exists around the collateral borrowed against and if that completely disappears when the land is sold to another entity.   

As it stands, A2619A attempts to solve the main issues surrounding ground leases and to level the playing field. According to Schneider, if the bill were to become law, it would provide much better financial predictability for buildings operating under ground leases. 

“Right now, uncertainty surrounding future ground rent increases can negatively impact apartment values, create financing challenges, and make long-term planning much more difficult for boards,” says Schneider, “If these co-ops have a right to renewals and with transparency and limits on the financial impact of these renewals, the boards can better plan for capital projects, lenders will be willing to lend to the boards and purchasers of the apartments and the value of the apartments will be stabilized enabling the marketability of these apartments for shareholders.”

Read more about Assembly Bill A2619A at nysenate.gov/legislation/bills/2025/A10283 

Kate Mattiace is the Associate Editor of CooperatorNews.