New York Notches Up Its War On Real Estate

New York’s Legislature has passed a piece of legislation that would, if signed by the governor, publicly disclose the names of every real estate or other investor who plays a substantial role in any limited liability company that does business in New York. The Legislature took inspiration from the federal Corporate Transparency Act passed a few years ago, which required filing the same information and more with a federal agency. There, it is all supposed to remain confidential, except as needed for law enforcement. The federal filing requirement starts in January 2024 unless postponed, which seems likely.

New York’s lawmakers decided the federal system wasn’t enough. Their new law would create a whole second system of its own. It would differ from the federal system in a few ways. As the most important difference, New York’s proposed system would not maintain confidentiality of the business address of each LLC and the names of LLC owners who have “substantial control” of the LLC as defined in the federal law. That information would become publicly available to anyone with an Internet connection. Perhaps concerningly, the new system would also disclose whatever else the New York Secretary of State decides should be disclosed.

In contrast, the incipient federal system requires the confidential reporting (but not disclosure) of the names and home addresses of anyone with “substantial control” of the LLC. The federal system also, rather astonishingly, requires an updated filing every time one of those people moves to a new house or apartment. New York’s system wouldn’t.

The New York legislation would direct the New York Secretary of State to come up with a process so people who own interests in LLC’s can keep their names confidential. The legislation would set a pretty high standard for nondisclosure, such as participation in a witness protection or whistleblower program. Ordinary privacy concerns probably wouldn’t cut it.

The Legislature justified its new plan by declaring, among other things, that “anonymous ownership of a significant portion of real estate in New York hampers policy-making and upends centuries of precedent by obscuring the answer to the question: who owns what?” All transparency is automatically good, according to the Legislature.

Transparency will, however, create new opportunities for harassment. New York tenant organizations and other progressive groups have proven themselves to be masters at campaigning against anyone they don’t like, especially building owners. The proposed new LLC disclosure system will give those groups new grist for their mill. Once they decide to go after any LLC, they will be able to identify exactly where they should protest and picket. The New York filings will also allow the protesters to identify individuals who they can then try to publicly shame for the alleged sins of the LLC.

With a little more research (outside the LLC disclosure system), the protesters and picketers will often be able to figure out home addresses, so they can go protest and picket there if they see fit.

The Legislature cites money laundering and other criminal activity as a major justification for its LLC disclosure system, but the new federal reporting system already adequately addresses that agenda. To that extent, the New York system would be entirely duplicative, adding nothing. Its main impact will consist of a huge loss of privacy for no convincingly good reason.

Commentators have suggested that anyone who owns an LLC doing business in New York may respond to the proposed legislation, if it becomes law, by converting from an LLC structure to a partnership, limited partnership, or corporate structure. After all, the legislation addresses only LLC’s, not other types of business entity. As a practical matter, however, the legislators are smart and nimble enough to quickly expand the scope of their new creation if they want.

At the time of writing, the governor has not signed the LLC disclosure legislation. Perhaps she will realize that she can demonstrate New York’s new allegedly “business-friendly” mindset by using her veto power.

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