Senate Bill S1163 – Learn More

We are writing to alert you to Senate Bill S1163 which has passed both the Senate and Assembly, but has yet to be sent to the Governor for signature.

This bill prohibits the common practice of requiring a borrower to achieve minimum rents from its tenants as a loan covenant. The bill amends §284 of the Real Property Law, adding a section that makes it unlawful to penalize borrowers for not charging their tenants “high enough” rent. The statute would make all mortgage provisions that condition default or performance on rent levels void and unenforceable, and would apply both retroactively and prospectively to all mortgages in New York, regardless of “when [they were] issued, renewed, modified, altered or amended.” If signed into law, lenders will be forced to parse their entire New York loan portfolios to ascertain whether they contain any rent-minimum based provisions, which would be rendered void.

The legislative justification of the bill is to combat the purported effects of COVID on small businesses, allowing and incentivizing landlords to lower their rents below the minimums set in their mortgage agreements. The bill specifically forbids mortgagees from charging fees, claiming default or “otherwise penalize[ing]” mortgagors for not setting high enough rent rates for their properties but does not contain a definition for what may be considered to be “penalizing” beyond charging fees and claiming a borrower is in default. While the full application and scope of S1163 remains unclear, including whether the Governor will sign it into law, its potential impact is significant and warrants the attention of real estate and lending professionals doing business in the State of New York. 

Rosenberg & Estis, P.C. will monitor this legislation and update you if there are further developments.