3 ms·

I readily admit I have no idea if this would be feasible in practice, but what's to stop landlord ABC, Inc from skirting the law by setting up shell company XYZ

I readily admit I have no idea if this would be feasible in practice, but what's to stop landlord ABC, Inc from skirting the law by setting up shell company XYZ, LLC, and then leasing the vacant space to that company? In this scenario, XYZ would essentially just pay themselves rent causing ABC to avoid the vacancy tax.

bsder 3y ago
Is that not fine? You are collecting tax on rental income so there is still a strong incentive to put someone else in there. And, if you have a financing agreement, you will have to shuffle around (and pay tax on) the rent that you officially declare in the financing agreement. You can't just put a nominal rent on it or that violates the financing agreement. The overall point is simply to make reducing the rent to attract a tenant more attractive than leaving the place empty for multiple years.
- ethanbond 3y ago
  By leasing at $10/mo to your shell corp?
  - bsder 3y ago
    Then you would violate your financing agreement as the rent would be below the capitalization threshold and you would have to cough up money to the bank. I don't think you understand the issue. The issue here is that many of these financing agreements specify a minimum rent and if you fall below that you are in violation of the capitalization requirements and you owe the bank money. By contrast, missing rent is considered a temporary condition and can be tacked onto the back end of the financing agreement. So, zero rent does not cause capitialization issues, but lower rent does. Thus, landlords have a perverse incentive to leave a place unrented rather than lower the rent. An occupacy tax breaks that perverse incentive. The goal isn't to grind up landlords. The goal is to cause rents to come down when they should. Right now, the back end financing agreements are keeping rents artificially inflated.
    - ethanbond 3y ago
      Hmmm... how many of these financing agreements specify a minimum rent? I've never seen this or heard of this (but this is way outside my wheelhouse, so I'm 0% confident I would've). My initial searching doesn't give me the impression it's common.
      - userinanother 3y ago
        Very common that’s why many places would rather have high occupancy than lower rent.
        ethanbond 3y ago
        There are plenty of other reasons too, and I can’t find any evidence of minimum rents being common in financing agreements, so without that this reasoning looks really flawed.

bsder 3y ago

Is that not fine? You are collecting tax on rental income so there is still a strong incentive to put someone else in there. And, if you have a financing agreement, you will have to shuffle around (and pay tax on) the rent that you officially declare in the financing agreement. You can't just put a nominal rent on it or that violates the financing agreement. The overall point is simply to make reducing the rent to attract a tenant more attractive than leaving the place empty for multiple years.

ethanbond 3y ago
By leasing at $10/mo to your shell corp?
- bsder 3y ago
  Then you would violate your financing agreement as the rent would be below the capitalization threshold and you would have to cough up money to the bank. I don't think you understand the issue. The issue here is that many of these financing agreements specify a minimum rent and if you fall below that you are in violation of the capitalization requirements and you owe the bank money. By contrast, missing rent is considered a temporary condition and can be tacked onto the back end of the financing agreement. So, zero rent does not cause capitialization issues, but lower rent does. Thus, landlords have a perverse incentive to leave a place unrented rather than lower the rent. An occupacy tax breaks that perverse incentive. The goal isn't to grind up landlords. The goal is to cause rents to come down when they should. Right now, the back end financing agreements are keeping rents artificially inflated.
  - ethanbond 3y ago
    Hmmm... how many of these financing agreements specify a minimum rent? I've never seen this or heard of this (but this is way outside my wheelhouse, so I'm 0% confident I would've). My initial searching doesn't give me the impression it's common.
    - userinanother 3y ago
      Very common that’s why many places would rather have high occupancy than lower rent.
      - ethanbond 3y ago
        There are plenty of other reasons too, and I can’t find any evidence of minimum rents being common in financing agreements, so without that this reasoning looks really flawed.