Amendments Require LLCs to Disclose Information of Its Members Prior to It Buying or Selling Residential Property in New York
By Robert J. Lum
On September 13th 2019, Governor Andrew Cuomo signed into law certain amendments to the New York State Tax Law § 1409 and the New York Administrative Code § 11-2105 (the “Amendments”) which now require Limited Liability Companies (“LLCs”) to disclose the names and addresses of each its member prior to it transferring a one-to four-family residential property within the State.
Now codified in the New York State Tax Law § 1409(a) and New York Administrative Code § 11-2105(h), the Amendments state in relevant part that:
When the grantor or grantee of a deed for residential real property containing one- to four-family dwelling units is a limited liability company, the joint return shall not be accepted for filing unless it is accompanied by a document which identifies the names and business addresses of all members, managers, and any other authorized persons, if any, of such limited liability company and the names and business addresses or, if none, the business addresses of all shareholders, directors, officers, members, managers and partners of any limited liability company or other business entity that are to be the members, managers or authorized persons, if any, of such limited liability company.
The new stringent disclosure requirement applies when the LLC is a buyer or seller of a residential property containing one-to four-family dwelling units - no matter the purchase price. In simple terms, the name of every person who owns a membership interest in an LLC, directly or indirectly, that is the buyer or seller of a one-to four-family residential property, must be disclosed when a transfer of that residential property occurs.
Do the Amendments to New York State Tax Law § 1409(a) and New York Administrative Code § 11-2105(h) require the disclosure of business entity members of LLCs?
Yes. The Amendments are clear by stating that if any member of the “grantor” or “grantee” is itself a “business entity” of any type, then the names of the principals of that business entity must be disclosed. All individuals of the business entity within the ownership structure must be identified, including the directors, officers and partners. The reporting requirement also applies to those who are not principals of the grantor or grantee. The names of any managers and authorized persons of the grantor or grantee must also be disclosed.
Do the Amendments to New York State Tax Law § 1409(a) and New York Administrative Code § 11-2105(h) apply to the sale and purchase of condominium units, cooperative units, and mixed-use properties?
Due to the vague language of the Amendments, it has been difficult to interpret. There can be an argument made that the Amendments do not cover every buy/sell transaction involving a residential unit, and that the sale of units with cooperatives, condominiums, and mixed-use properties are excluded from the disclosure requirements.
Interestingly, the Amendments do not specifically mention the sale and purchase of condominium units, but we may presume that condominium units fall within the reach of the new disclosure requirements since any sale or purchase of condominium units are by transferring a deed. On the other hand, cooperative units appear to be exempt from the new disclosure requirements since the sale and purchase of such units are through transfers of shares rather than deeds. Nonetheless, both the sale and purchase of cooperative and condominium units are subject to their unique requirements, respectively, under “Real Property Transfer Tax” Section 11, Chapter 21. (The Amendments are stated in the same Section and Chapter). The further unknown is whether the Amendments apply to mixed-use properties. We are hopeful that the New York State Legislature provides clarity on the Amendments when they resume in January 2020.
If prospective buyers or sellers are LLCs, and the members of the LLCs would like to maintain their anonymity, then they should contemplate about other structures that would ensure such privacy, such as trusts.