New York Law Unmasks Anonymous LLC Ownership of Residential Real Property

By: Ian S. Ludd

Anonymous members of LLC’s that own residential real property in New York State may not be able to maintain anonymity much longer. Surprising law makers and real estate professionals alike, a new law is being interpreted to have a far greater reach and impact than previously thought.

Senate Bill S1730, signed by Governor Cuomo on September 20, 2019 and effective September 13, 2019, requires the real property transfer tax return relating to residential property sold or purchased by a limited liability company to include information on the ownership of the LLC. Previously, an LLC could utilize various strategies to mask the ultimate identity of individual members with ownership interests in the LLC. This new legislation requires Limited Liability Companies that are grantors or grantees of real property containing one-to-four family dwelling units to disclose the ownership of the LLC such that “disclosure of ultimate ownership by natural persons is achieved.”

The legislation was proposed as a solution to unmask anonymous LLCs purchasing residential real estate in the Hudson Valley, particularly with a focus on easing the burden of assessing penalties for code violations. The “Purpose” section of the Bill states, that this new amendment would simply have the effect of codifying state-wide measures that are already in place in New York City. However, initial guidance suggests it is far more sweeping.

Guidance from the Department of Taxation and Finance specified that these provision applied to single family residential condos throughout New York State and that “natural persons” would be defined as biological human beings with a beneficial interest in the property. Such disclosures of ownership on transfer tax returns are likely subject to Freedom of Information Law requests. These requirements are far more expansive than the laws previously enacted in New York City, making it impossible for LLCs selling or purchasing condominiums to protect the identities of individual members.

The uncertainty produced by this new amendment has led to deeds being rejected by recording offices and widespread confusion over the applicability of the new provisions. While additional guidance is slowly being released, absent additional clarification or exemptions to this new law, the relatively established practice of anonymous LLC ownership of residential real property may be a thing of the past in New York State.