The owners of certain residential properties in New York can no longer shield their identities from the state using anonymous LLCs.
Legislation signed by Gov. Andrew Cuomo last Friday and effective immediately requires LLCs involved in real estate transactions in the state to disclose the identities of all owners, managers and agents associated with the company.
The change marks a small step toward greater transparency in New York’s real estate industry, which is rich with buyers using LLCs. However, some may question whether it goes far enough: The law is limited to properties containing one to four units, and disclosures only need to be made in joint tax filings, which are not public.
Democratic State Senator Alessandra Biaggi, who co-sponsored the bill, told The Real Deal it was primarily aimed at addressing the problem of abandoned homes in New York towns such as Ramapo, Newburgh and Mount Vernon. The introduction of the bill followed a six-month investigation into code enforcement, led by Democratic State Senator James Skoufis.
“What we found was that a lot of the violations, when it comes to the building codes, are hard to enforce because you cannot identify who owns the building that has been abandoned,” Biaggi said.
At a public hearing in Newburgh in May, the senators heard testimony about the risks abandoned homes posed to firefighters and community members who entered them.
After the bill passed, Skoufis said it would “rip the mask off of these anonymous LLCs that continue to purchase massive amounts of real estate in the Hudson Valley.”
The change will not affect buyers in New York City, who are already subject to rules implemented in 2015 by the city’s Department of Finance. However, it will effectively apply these rules across the state.
“It seems that the only parties who will be impacted, will be parties who are trying to hide their identities from the taxing authorities,” said Richard Cohen, a partner at the New York law firm Cohen & Cohen.
It is unclear whether the identifying information will be subject to Freedom of Information laws. A representative for Biaggi said that “people will be able to file FOIL requests to receive the name and addresses of the individuals related to an LLC.” However, Joshua Cohen, also of Cohen & Cohen, said he was not sure whether the information would be available through a FOIL request but his interpretation of the law was that the disclosures “should not be a matter of public record on ACRIS and will only be available to the taxing authorities, as they contain sensitive information such as Social Security numbers and taxpayer identification numbers.”
LLCs have boomed in popularity in New York over the past 20 years, offering a veil of protection to buyers — including wealthy foreigners and high-profile celebrities — who don’t want their identities revealed.
In 2018, an analysis of property sales by The Real Deal showed that 7,319 deals in New York’s five boroughs in the first half of the year involved an LLC. Luxury real estate had a particularly high concentration: 72 percent of condo sales above $10 million in the same time period involved an LLC — a 20 percent increase from 15 years ago.
While legal, the use of LLCs can make it difficult for authorities to detect money laundering and to hold landlords to account.
This year New York Representative Carolyn Maloney introduced a draft of the Corporate Transparency Act of 2019, which would require corporations and LLCs to disclose their beneficial owners to the Financial Crimes Enforcement Network.
Asked about the wider issue of LLCs, Biaggi said the latest bill was a “good place to start.”
Will it lead to broader change? “If it does indicate a broader stroke for more legislation, that is not a bad thing,” the senator said. “The ultimate goal here is to give all New Yorkers the ability to understand who they are doing business with.”