Belkin Burden Wenig & Goldman, LLP
E D I T O R S
Magda L. Cruz
Aaron Shmulewitz Kara I. Rakowski
NOv e M Be R 2 0 1 3 | vOL U M e 2 8
T RANS ACT IONAL U p d AT e
Inside This Issue TRANSACTIONAL UPDATE defer Now… pay eventually… The Ins and Outs of 1031 exchanges .1, 2
defeR NOw… pAy eveNTUALLy… The INS ANd OUTS Of 1031 exChANgeS changed, without a gain “occurring”, and therefore the taxpayer did not generate new funds to create liability for capital gains tax. If qualifying under §1031, an investor can defer any capital gain tax owed until the replacement property is eventually sold without being exchanged.
LITIGATION UPDATES Say Uncle........................2, 3 Recovery Of possession After foreclosure .........................3 BBWG IN THE NEWS ........4 BBWG NOTABLE ACHIEVMENTS .................5 TRANSACTIONS OF NOTE ...........................5 CASE OF NOTE .................5 CO-OP / CONDO CORNER ....................... 6, 7
By Craig L. Price & Nicki M. Neidich Internal Revenue Code §1031 permits investors to defer capital gains tax by allowing the proceeds of relinquished property to be reinvested into replacement property without recognizing any gain, thus deferring the tax on the gain. Effectively, the IRS merely deems the form of the investment to have
In order to qualify, a transaction must be initially structured as an exchange, as distinguished from a “regular” sale. The taxpayer may set up the exchange until the closing of title on the relinquished property. The threshold issue to ask is whether the properties to be exchanged will qualify. First, properties exchanged must be considered “like-kind” to one another. This requirement is fairly lenient – the continued on page 2
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Belkin Burden Wenig & Goldman, LLP | 270 Madison Avenue | New York, NY 10016 | Tel 212 .867 .4466 | Fax 212 .867 .0709
TRANSACTIO NAL Up date
Defer Now… Pay Eventually… The Ins and Outs of 1031 Exchanges continued from page 1
properties must be of the same nature, and quality plays no role. Second, the property must be held for business or investment use. Personal residences and property purchased for resale do not qualify, but if the taxpayer holds the replacement property for a proper use period, it may be possible to convert the use of the property. Please consult your tax advisor regarding what is a “proper use period.”
value is at least 95% of the aggregate value of all of the identified properties. The taxpayer should keep in mind that (i) the value of the replacement property must equal at least the value of the relinquished property, (ii) the debt and equity in the replacement property must be at least that of the debt and equity in the relinquished property, and (iii) all net proceeds must be used to obtain the replacement property.
as a safe harbor for the taxpayer and allows the gain to be deferred. At the closing of the acquisition of the replacement property, the qualified intermediary will remit the relinquished property proceeds to the seller and acquire the replacement property before transferring it to the taxpayer, completing the exchange.
Next, applicable time limits must be strictly adhered to. The replacement property must be identified within 45 days from the date of the closing of the relinquished property. In order to “identify” replacement property, the taxpayer must designate the replacement property in a signed writing delivered to a qualified intermediary (see below). The taxpayer may identify (i) up to three potential replacement properties, (ii) any properties whose total value is less than twice the value of the relinquished property, or (iii) any properties whose total
The second time constraint is that the closing of the acquisition of the replacement property must occur within 180 days from the date of the closing of the sale of the relinquished property. If the taxpayer violates either of these two time limits, then the exchange will fail and the taxpayer must pay the ordinary capital gains tax.
For investors, §1031 is a valuable tool that can effectively defer capital gains taxes virtually perpetually, so long as the taxpayer continues to engage in like-kind exchanges. If you have any tax-specific questions, BBWG recommends that you consult your individual tax advisor. For any question relating to the structuring of a 1031 exchange, please contact Craig L. Price at firstname.lastname@example.org.
Finally, the exchange should be facilitated by the use of a qualified intermediary, an independent third party who, by acquiring the exchanged property and proceeds, acts
Craig L. Price (email@example.com) is a partner and Nicki M. Neidich (firstname.lastname@example.org) is an associate in in BBWG’s Transactional Department.
holdover proceeding against the niece of the tenant of record who died in 2010. The niece’s main defense was that because she notified the owner in 1992 that her uncle was moving, she was entitled to succession pursuant to the Rent Stabilization Code (RSC) as it existed in 1992 (which allowed nieces to claim succession).
were in effect at the time a proceeding is commenced, are the law which governs the proceeding. The owner brought the proceeding in 2012, well after the RRRA eliminated nieces as a protected class.
liti gation Up date
Say Uncle By Corina Streekmann The Rent Regulation Reform Act of 1997 (RRRA) modified the class of individuals eligible for succession and eliminated nieces, nephews, aunts and uncles from among those relatives which qualify as “family members” for succession claims to rent regulated tenancies. In a recent case, the owner brought a
The owner moved for summary judgment to evict the niece based upon two arguments. The first argument was that case law holds that the provisions of the RSC that
The second argument was that although the niece claimed that her uncle permanently vacated the subject apartment in 1992, that claim it was belied by her uncle’s conduct. The uncle continued to execute lease renewals for 18 years for the subject apartment until his death, paid rent from continued on page 3
liti gation Up date
continued from page 2
an account that bore the uncle’s name and, when the owner inquired in writing about the uncle’s primary residence, the uncle and niece remained silent. The court ruled in favor of the owner, holding that it is required to apply the
law in effect at the time the litigation was commenced, not when the alleged circumstances that gave rise to the lawsuit took place. The court also held that the niece and her uncle engaged in a pattern of deception for over eighteen years to conceal the fact the uncle had vacated the subject
apartment. The court awarded the owner a judgment of possession. The decision is being appealed by the niece. Corina Streekmann is a partner in BBWG’s Litigation Department.
liti gation Up date
RECOVERY OF POSSESSION AFTER FORECLOSURE By Joseph Burden After a foreclosure proceeding is completed and a deed has been issued to the mortgagee or its successor, the former homeowner often remains in possession of the home. The new owner usually wants to recover possession. If a surrender of possession cannot be negotiated with the former homeowner, then, pursuant to RPAPL § 713(5), a summary proceeding can be commenced in a court of appropriate jurisdiction to recover possession.
the new owner’s attorneys only displayed the successor deed and not the Referee’s deed. The Court dismissed the proceeding without prejudice holding that exhibiting the successor deed was insufficient under the statute. It is important that a successor owner display the initial Referee’s deed (as well as the deed giving the successor owner title) when serving the predicate notice to the proceeding to recover possession. Failure to do so may result in the proceeding being dismissed.
An owner seeking to recover possession after foreclosure should consult with counsel experienced in these matters before commencing proceedings to recover possession. Joseph Burden (email@example.com), a partner of BBWG, co-heads BBWG’s Litigation Department.
As part of that proceeding, the new owner must “exhibit” an original or a certified copy of the Referee’s deed prior to commencing the proceeding. If the initial fee owner conveys title and a successor is the new owner, what deed must be “exhibited” to the former homeowner? In a recent decision, the Nassau County District Court held that it is not the deed giving title to the successor, but the initial Referee’s deed that must be “exhibited” to the former homeowner as part of the proceeding. In the Nassau County case,
BBwg IN The NewS The addition of ALLISON LISSNER as a partner in BBWG’s Transactional Department was the subject of an article entitled “Belkin Burden Grabs Real Estate Superstar” that appeared on JDJournal.com on September 23.
SHERWIN BELKIN, a partner in BBWG’s Administrative Law and Appeals Departments, responded to an inquiry in the Sunday New York Times Real Estate section on October 6 regarding the rights of month-to-month tenants when a building is sold. Mr. Belkin also penned a blog posting entitled “When 1BR Becomes 2: The Legality of Installing Wall Partitions in a NYC Rental Apartment” on Streeteasy.com on October 1, accessible at http://ownyourhome.streeteasy.com/when-1br-becomes-2-the-legality-of-installing-wall-partitions-in-a-nyc-rental-apartment and another posting entitled “An Owner’s Right to Occupy a Rent Regulated Apt.” on October 21, accessible at http://ownyourhome.streeteasy. com/an-owners-right-to-occupy-a-rent-regulated-apt. Mr. Belkin was also quoted in an article that appeared on Law360.com on October 2, entitled “Apartment-Sharing Victory for Airbnb in NYC? Not So Fast,” regarding owners’ continuing rights to address unauthorized short-term transient apartment occupants. The Wall Street Journal quoted Mr. Belkin as to the intimidating nature of the wide-ranging subpoenas issued by DHCR’s Tenant Protection Unit.
AARON SHMULEWITZ, head of the firm’s co-op/condo practice, responded to inquiries in the Sunday New York Times Real Estate section on September 1 regarding the addition of a child’s name to a co-op proprietary lease, and on September 29 regarding a Board’s right to publicize a shareholder’s arrearage. Mr. Shmulewitz was also quoted in articles in the Sunday New York Times Real Estate section on surveillance cameras in co-ops and condos (October 6), and hoarding in co-op and condo apartments (October 13). Finally, Mr. Shmulewitz was quoted in an article in the October 14 on-line edition of The Wall Street Journal that analogized Congress to a co-op Board.
CRAIG L. PRICE, a partner in BBWG’s Transactional Department, was quoted in an article that appeared on Law360.com on October 30, entitled “Five Ways Tech is Changing Commercial Real Estate.” Mr. Price commented that technology “has changed the way people transact business,” so possibilities for due diligence, marketing and deal making are becoming more varied. The article is accessible at: http://www. law360.com/realestate/articles/484685/five-ways-tech-is-changing-commercial-real-estate.
JEFFREY L. GOLDMAN, co-head of BBWG’s Litigation Department, was quoted in articles in the Daily News on September 17 and November 1 regarding the firm’s representation of Donald Trump and Trump University in an action brought by the New York State Attorney General’s oﬃce.
KARA RAKOWSKI, a partner in BBWG’s Administrative Law Department, responded to an inquiry in the Sunday New York Times Real Estate section on October 24 regarding whether there is a legal obligation to employ a superintendent for a six-unit residential building.
BBwg NOTABLe AChIeveMeNTS LEWIS A. LINDENBERG, a partner in BBWG’s Litigation Department, was a featured speaker at the Annual Judicial Seminar sponsored by the Board of Judges of the Civil Court of the City of New York and the Association of Housing Court Judges, on October 22.
CRAIG GAMBARDELLA, an associate in BBWG’s Litigation Department, addressed approximately fifty Massey Knakal Realty Services brokers on October 3 regarding the state of rent regulation in New York City.
TRANSACTIONS Of NOTe CRAIG L. PRICE handled the following transactions: • Represented the sponsor of the condominium oﬀering at 101 West 87th Street in the $13 million sale of the retail condominium unit to Trevi Retail. • Represented the seller in the sale of a commercial oﬃce condominium unit to a Chinese press agency. • With HOWARD WENIG and ALLAN GOSDIN, represented the seller of a $20 million, 38-unit West Village apartment building to Benchmark Real Estate Group. • With HOWARD WENIG, represented the seller of a midtown garage condominium unit to an aﬃliate of SL Green.
CASe Of NOTe In rent regulated housing, if the housing accommodation is not used as the tenant’s primary residence, the owner may recover possession. In a case that significantly altered the evidentiary burden that owners have in proving non-primary residence, 409-411 Sixth Street, LLC v. Mogi, the Court of Appeals ruled that the Appellate Division had not applied the correct standard of review in reversing a trial court’s judgment in favor of the owner. The trial was successfully handled by litigation partner, JOSEPH BURDEN, and the matter before the Court of Appeals was handled by appellate partner, MAGDA CRUZ, for the prevailing owner.
Co-op | Condo Corner By Aaron Shmulewitz Aaron Shmulewitz heads the Firm’s co-op/condo practice, consisting of more than 300 co-op and condo Boards throughout the City, as well as sponsors of condominium conversions, and numerous purchasers and sellers of co-op and condo apartments, buildings, residences and other properties. If you would like to discuss any of the cases in this article or other related matter, you can reach Aaron at 212-867-4466 or (firstname.lastname@example.org).
CO-OP SHAREHOLDER CAN SUE CO-OP’S ENGINEER FOR FAILURE TO ENFORCE REQUIREMENTS OF COOP’S ALTERATIONS AGREEMENT BY NEIGHBOR DOING RENOVATIONS Fuisz v. 6 East 72nd Street Corporation Supreme Court, New York County COMMENT | Alterations not compliant with the alterations agreement apparently caused significant damage to plaintiff’s apartment. PURCHASER OF CO-OP FROM HOLDER OF UNSOLD SHARES NOT SUBJECT TO CO-OP’S FINANCING CAP IF CAP PERCENTAGE IS SOLE CRITERION FOR CONSENT TO FINANCING
LAUNDRY VENDOR CAN ENJOIN TERMINATION OF LEASE BASED ON ALLEGED FAILURE TO MAINTAIN AND REPAIR EQUIPMENT Fowler Route Co. v. Oceans 2 Supreme Court, Kings County COMMENT | The Court noted that the vendor had responded timely to cure notices. ELDERLY RENT-STABILIZED TENANT NOT EVICTED FOR NOISE, SINCE HE PRODUCED ONLY REGULAR APARTMENT-LIVING SOUNDS, NOT A NUISANCE J.S.B. Properties, LLC v. Cohen Civil Court, Landlord & Tenant Part, New York County
Elias v. Orsid Realty Corporation Supreme Court, New York County
COMMENT | While not involving a co-op or condo, this holding is instructive; the Court emphasized his age and his 37-year tenancy.
COMMENT | The Court held that using the financing cap percentage, alone, was unreasonable, but that ALL factors bearing on the purchaser’s finances would be OK to review.
SON DECLARED SOLE OWNER OF CO-OP DESPITE (DECEASED) FATHER’S NAME AS RECORD CO-OWNER Eisenhauer v. Bruno Supreme Court, Westchester County
SHAREHOLDER CANNOT ENJOIN CO-OP FROM MASSIVE REPAIRS TO HER APARTMENT THAT WILL RESULT IN 3% SIZE REDUCTION Goldstone v. Gracie Terrace Apt. Corp. Appellate Division, 1st Department COMMENT | The Court held that the size reduction was de minimis, did not constitute irreparable harm, and was compensable by money. CO-OP’S TERMINATION OF SHAREHOLDER’S PARKING LICENSE FOR NON-PAYMENT OF PARKING FEES PROTECTED BY BUSINESS JUDGMENT RULE 257 Central Park West, Inc. v. Abraham Appellate Term, 1st Department
COMMENT | The father had submitted an affidavit in an earlier divorce proceeding on which he did not list any interest in the co-op as an asset; the Court stated that it could not overlook that prior sworn statement. SPONSOR HAS IMPLICIT OBLIGATION TO SELL UNITS IN NEW CONSTRUCTION CONDO Bauer v. Beekman International Center Supreme Court, New York County COMMENT | In this very important but puzzling decision, the Court still dismissed the Unit Owner’s complaint, because the Court found that the Condominium was viable even though half of the units were being leased by the sponsor, and the sponsor had stopped trying to sell units.
CONDO CANNOT SUE SPONSOR’S ARCHITECT FOR BUILDING DEFECTS One Grand Army Plaza v. Seventeen Development, LLC Supreme Court, Kings County COMMENT | Continuing a marked trend, the Court held that the Condominium was not a third-party beneficiary of the agreement between the sponsor and its architect, and had no privity of contract with, and was owed no duty by, the architect. MERE RECONSTITUTION OF MITCHELL-LAMA COOP TO PRIVATE STATUS DID NOT TRIGGER NYC REAL PROPERTY TRANSFER TAX, SINCE NOT A TRANSFER Trump Village Section 3, Inc. v. City of New York Appellate Division, 2nd Dept. CONDO DID NOT DISCRIMINATE AGAINST UNIT OWNER ON DISABILITY GROUNDS BY REQUIRING DOGS TO BE WALKED IN DESIGNATED AREA McKiernan v. Trump Park Residences Human Rights Commission, Westchester County COMMENT | The Unit Owner had three dogs, none of which were service animals, and the designated dog-walking area was 250 feet away from her unit. CONDO ENTITLED TO SUMMARY JUDGMENT AGAINST UNIT OWNER FOR NON-PAYMENT OF COMMON CHARGES Board of Managers of Brightwater Towers Condominium v. Cheskiy Appellate Division, 2nd Dept. COMMENT | The Court rejected the Unit Owner’s affirmative defense of constructive eviction, holding that it was inapplicable since no landlord/tenant relationship existed.
Belkin Burden Wenig & Goldman, LLP 270 Madison Avenue | New York, NY 10016
New York Office | 270 Madison Avenue | New York, NY 10016 | Tel 212 .867 .4466 | Fax 212 .867 .0709 Connecticut Office | 495 Post Road East, 2nd Floor | Westport, CT 06880 | Tel 203 .227 .1534 | Fax 203 .227 .6044 Please Note: This newsletter is intended for informational purposes only and should not be construed as providing legal advice. This newsletter provides only a brief summary of complex legal issues. The applicability of any or all of the issues described in this newsletter is dependent upon your particular facts and circumstances. Prior results do not guarantee a similar outcome. Accordingly, prior to attempting to utilize or implement any of the suggestions provided in this newsletter, you should consult with your attorney. This newsletter is considered â€œAttorney Advertisingâ€? under New York State court rules.