Business Improvement Districts (BIDs) are neighborhood economic development organizations created to improve the commerce and safety of a defined area. Retail Lease BID Fees can be significant financial burdens to commercial and retail tenants.
New York City has the most BIDs of any municipality in the US. Of the 69 BIDs citywide, over a third were approved during the Bloomberg administration. BIDs have contributed over $103 million annually in services to more than 21,000 retail businesses in New York City. They have been used predominantly in troubled neighborhoods to improve safety, eliminate graffiti and advance local retail.
The Department of Small Business Services manages BIDs. They must gain local consensus (51%) of tax-lot holders in a specific area to be approved by the City Council. This effort can take years to organize.
Funding for BIDs is primarily from an assessment paid by commercial property owners, while residential property owners usually pay a symbolic $1. Each BID establishes its specific formula to determine the amount of assessment. In the case of a BID in a SoHo neighborhood, many cooperatives had profit-driving retail on their ground floor. As a compromise, the BID committee offered to reimburse property owners who did not have ground-floor retail. When that wasn’t enough to satisfy those who opposed the BID, the district’s city council member negotiated another compromise where residential co-op owners all pay $1.
For tenants of commercial leases, the fees and assessments paid by the building’s owner are often passed through to the tenant. For example, a lease for a retail space that is part of a BID will likely include a provision requiring the tenant to pay the retail lease BID Fees.
The BID assessment effectively becomes a tax imposed upon the landlord and should be treated as a tax for purposes of the lease. The tenant should only be required to pay the BID charges over the first year of the lease or “base” year. Tenants should ensure that the retail lease BID Fees are calculated similarly to the real estate tax escalation.