Selling a prewar loft in SoHo has become problematic of late because of renewed attention to AIR—artist in residence—zoning requirements. Though the law has been in effect since the early 70’s, it’s been virtually ignored—until now.  Although the reasons behind the new focus are sketchy, it’s clear that if the zoning rules currently on the books for SoHo were enforced strictly, real estate values would be undermined.  It’s time to amend the outdated ruling and acknowledge that SoHo is a different place today than 40 years ago.

 

Originally zoned for light industrial and commercial use, the masonry and cast iron buildings of SoHo were populated by artists in the 1960’s illegally.  During the next decade, the city enacted rules permitting artists to live and work in converted lofts in the M1-5A and M1-5B districts if one member of the family was certified by the Department of Cultural Affairs. 

 

From the beginning, the zoning requirement in co-ops (and later condos) was a veritable Catch 22:  only a certified artist could purchase, but certified artists rarely had the financial wherewithal with which to buy.  Loopholes were found and restrictions were passed over as mainly corporate professionals, bankers, traders, celebrities, entrepreneurs and foreign investors purchased SoHo loft spaces.  The neighborhood changed dramatically from the 80’s to the present, and property values rose steadily and substantially.  The attorneys I surveyed who all preferred to remain anonymous were in agreement:  “We didn’t worry about it,” said one.  “Everyone knew the law, but everyone including city inspectors looked away.”

 

The application from the Department of Cultural Affairs, available online, defines an artist as someone who on a regular and ongoing basis “is engaged in the fine arts, not the commercial arts, including but not limited to painting, sculpture, choreography and filmmaking, and the composition of music.”  There is no fee to apply and reference letters are required as well as copies of the body of work.  On the application, the Artist Certification Committee states that their purpose is not to judge the applicant’s work aesthetically, but “to evaluate the applicant’s degree of commitment” and determine whether there is “need for a large space in which to carry out such work.”

 

Over the years, when not all apartments in a building housed a certified artist, the city would issue temporary certificates of occupancy instead of permanent certificates.  For their part, co-op boards would ask buyers to sign a “SoHo letter” which was an affidavit acknowledging zoning requirements. 

 

A variety of reasons have been offered for the recent crackdown.  Certainly tighter lending guidelines is one explanation since traditional lenders will not lend in a building where the C of O is in jeopardy.  One attorney suggested that inspectors may be under pressure because of potential scandals.  Another speculated that the city may be looking for ways to raise revenue.

 

None of the attorneys that I spoke to believed that the city would ever evict loft dwellers because they could not produce proof of artist certification.  However, they agreed that city inspectors could make life difficult and expensive by issuing multiple property violations if the building came up short of certified artists.  Another lawyer suggested that under the terms of a co-op’s proprietary lease, a shareholder could be held in default.

 

Brokers and attorneys are divided on how they are advising buyers.  Until there is more clarity from the city, some are recommending that purchasers wait.  After advising about future repercussions, others described sophisticated investors who have negotiated significant price discounts and bought.

 

It’s unclear why the city is not prepared to change a zoning law whose intent no longer applies.  Certainly there is an element who wants to preserve the artistic character of SoHo’s neighborhood.  But doesn’t attaching a specific occupation to city zoning border on being discriminatory?  In 2009, housing law added “lawful source of income” and “lawful occupation” to the list of what landlords can not discriminate against.   

 

Though deals are being made in SoHo today, a good many buyers are turning away from quality loft resales because of uncertainty.  While you can negotiate a better price when there is risk, to maintain property values, fair trading should not be restrained by a very outdated and irrelevant AIR requirement.