February 17, 2005
Re: § 674-a of the Banking Law
Dear [ ]:
Your November 17, 2004 letter to the Legal Division, New York State Banking Department (the "Department"), has been referred to me for a response. In your letter you requested a determination as to whether a restrictive provision in a lease, which prohibits an owner from leasing space to another financial institution, is null and void by virtue of § 674-a of the Banking Law.
Banking Law § 674-a:
"Every undertaking whether written or oral, express or implied, constituting or contained in a contract heretofore or hereafter entered into, directly or indirectly, between a banking organization, bank holding company, national banking association, federal savings and loan association or foreign banking corporation and the owner of interest in real estate located in the state, which bars such owner from leasing, selling or otherwise disposing of any interest in real property to any other banking organization, bank holding company, national banking association, federal savings and loan association or foreign banking corporation shall be null and void."
In your letter you stated that your client entered into a lease agreement with a financial institution in 1966 (the "Lease"), which prohibited your client from leasing space to another financial institution on the same floor. Based on the information you provided, the language in § 674-a of the Banking Law, on its face, would appear to render the restrictive provision in the lease null and void. However, that section of § 674-a, which nullifies such prohibitions in leases, was held to be constitutionally invalid when applied retroactively. Peoples Say. Bank of Yonkers v. County Dollar Corp. (2 Dept. 1974) 43 A.D.2d 327. In that case, the real property owner and the financial institution had entered into a lease agreement, dated November 14, 1952, which prohibited the owner from leasing space to another financial institution in the same shopping complex. The Westchester County Supreme Court at Special Term held that the prohibition was null and void by virtue of § 674-a of the Banking Law. The defendant appealed the decision, and the Appellate Division held that because § 674-a of the Banking Law became effective on September 1, 1973, and the lease was entered approximately twenty years before, making the prohibition null and void "would have permanently, and without compensation, destroyed a valuable property right." Id.
Based on this decision, and the fact that your client's Lease was entered into in 1966, it can be concluded that the prohibitions in your client's lease would be considered valid.
I trust the foregoing is responsive to your inquiry.
Very truly yours,