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BIDs Are Creeping Into Commercial Leases

bids

Business Improvement Districts (BIDs) have serious monetary implications to tenants of commercial buildings. NYC has 69 BIDs, the most of any city in the U.S., so commercial tenants should be aware of their existence and their potential monetary effect.

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BIDs are creatures of a statute which allows for the formation of neighborhood economic development organizations. These organizations are designed to deliver certain additional services to the neighborhoods they represent, which may include capital improvements, sanitation, security and neighborhood amenities, such as Wi-Fi. The property owners pay a “BID assessment” to the applicable BID to finance those supplemental public services. For example, the East Midtown Partnership is a BID which covers a large area of the city spanning from Madison Avenue to 2nd Avenue and East 49th Street to 63rd Street, affecting approximately 818 retail businesses. The East Midtown Partnership provides, among other things, sanitation services, business promotional services and holiday lighting.

The amount of assessment paid by property owners is determined by a specific formula that each BID creates for its district. The East Midtown Partnership’s budget is capped by the City at $2.2 million, which sum is funded by building owners (or more likely, their commercial tenants) within the BID. According to Rob Byrnes, president of the East Midtown Partnership, the landlords or commercial tenants within his BID contribute roughly $.08 per square foot of commercial space. Residential buildings are assessed a nominal $1.00 per residential unit while any commercial tenants within the residential building are assessed pursuant to the standard formula.

BIDs have monetary implications for tenants of commercial leases, as the fees paid by the landlord will likely be passed down to the tenant. A lease for retail space which is part of the East Midtown Partnership, for example, will undoubtedly include a provision requiring the tenant of the space to pay the BID assessment.

It is our contention, however, that the BID assessment is effectively a tax imposed upon the landlord, similar to a property tax. As such, it should be treated as a tax for purposes of the lease and the tenant should only be required to pay the increases, if any, over a base BID assessment year. As this is often not the case, tenants should be on the lookout for lease provisions requiring them to pay their proportionate share of the BID assessment.

Ryan V. Stearns and Jerome J. Strelov

Category: BID, Commercial Leases, News Comment »


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