United States:
New York State Legislation prepares the passage of mezzanine debt and preferred stock tax
March 24, 2021
Holland & Knight
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Highlights
- New York State Legislation passed a bill in August 2020
that would tax mezzanine debt (the mezzanine debt bill). To have
was recently reintroduced in both the Assembly and Senate, it
is expected to be enacted as part of the state in April 2021
Budget calculation. - The mezzanine debt bill would collect mortgage tax
on mezzanine debt and preferred holdings as well
require the mezzanine lender or preferred shareholder: a
Uniform financing declaration of the Commercial Code (UCC-1) to perfect its
Security interest in its collateral (i.e., membership interests
or shares of the borrower.) - Though the Mezzanine Debt Bill is aimed at real estate
Transactions there is a very real possibility that it could be
interpreted to include any financing transaction that even
indirectly, it concerns real estate, which companies can also belong to
Transactions in which the target company or its subsidiaries
Include properties that are used for operations.
A bill was introduced in New York State in August 2020
Legislation that would tax mezzanine debt (the mezzanine debt
Invoice). The mezzanine debt bill has now been reintroduced
in both the Assembly and the Senate and is likely to be enacted in
April 2021 as part of the state budget bill. The mezzanine
Debt Bill would collect mortgage registration tax on mezzanine debt
and preferred holdings as well as require that the
Mezzanine lenders or preferred shareholders submit a uniform
Financial Declaration of the Commercial Code (UCC-1) to improve its security
Interest in its collateral (i.e. the interests of members or
Borrower's shares.)
overview
The law changes Section 291-k of New York's real estate
Law defining "mezzanine debt" and "preferred capital"
Investments "as
"Debt of a borrower that may be subordinate to it
Mortgage and takes precedence over the common stock of a company or the
Equity of the borrower and as assets for the purposes of
Financing such a mortgage. This also applies to non-traditional ones
Financing techniques such as a direct or indirect investment by a
Source of financing in a company that owns the (equity) shares of
the underlying mortgage where the funding source is specific
Rights or preferential rights such as: (i) the right, a
particular or preferred return on his capital investment; and
(ii) the right to accelerated redemption for investors
Capital contribution. "
The reference to “non-traditional funding
Techniques "is problematic for many in the financial services sector
Industry because it's so open and practically anyone could allow it
Relationship is subject to mortgage tax.
The Mezzanine Debt Bill also amends Section 250 of the New
York State Tax Law and Section 9-601 of the New York Uniform
Commercial Code to indicate that "whenever a mortgage
The instrument is recorded in the recorder's office of
any county, mezzanine debt or preferred equity interest
related to the property on which the mortgage instrument is located
are also recorded with such a mortgage instrument. "
The Mezzanine Debt Bill also provides that "Mezzanine Debt and
preferred holdings "are taxable, and that tax
is measured by the amount of the "main debtor"
Obligations "that can be secured by a security agreement
"in relation to real estate on which a mortgage instrument
is filed. "One consequence of the record-keeping requirement is that
Counties and cities could also impose a tax on the collection of the tax
Financing declaration that would make the effective tax rate the same
on the tax rate for recording mortgages, which is 2.85 percent of the tax rate
"Debt" for commercial real estate in
New York City and valued at over $ 500,000.
The Mezzanine Debt Bill also changes Section 9-601 of the UCC
Make a new requirement that the record of a funding statement
in the relevant county records is required to "a
Security interest in mezzanine debt and / or preferred equity
Investments. "This is particularly worrying for the industry
Stakeholder because Section 291-k of the Real Estate Act
offers:
"No otherwise available remedy for a secured party under
Article nine of the Uniform Commercial Code is available
Enforcement of a security arrangement related to the financing of mezzanine debt
and / or preferred stakes in real estate
on which a mortgage instrument is submitted that is evidenced by a
Financing declaration, if this financing declaration is not submitted and
which according to the authority of the subdivision four of
Section two hundred and fifty-three of the Tax Act was made
paid."
Food stalls and reflections
Though the Mezzanine Debt Bill is aimed at real estate
Transactions there is a very real possibility that it could be
interpreted to include any financing transaction that even
indirectly, it concerns real estate, which companies can also belong to
Transactions in which the target company or its subsidiaries
Include properties that are used for operations. There are those too
Problem of transactions with multiple states in which either parties are involved, the
own real estate in New York or elsewhere, which also poses problems
what laws of the state would govern real estate in New York
in a transaction with a connection with another state.
Upon reviewing the Mezzanine Debt Bill it becomes clear that if
Enacted, it will and probably will make New York more expensive
Mezzanine debt and preferred equity are less available than in that
other 49 states.
Now that the US $ 1.9 trillion bailout plan is in place
Enacted to wipe New York's state budget deficit, there are many
Ask if this is the time for New York Legislature
Experiment with an untested concept that makes it harder
Real estate in New York to recover.
The content of this article is intended to provide a general overview
Guide to the subject. Expert advice should be sought
about your particular circumstances.
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