Assessment Method for Condos Under Attack
By William D. Siegel, Esq.
as published in Real Estate New York, September 2007
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Assessment Method for Condos Under Attack as published in Real Estate New York, September 2007 |
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As Mark Twain once aptly said “ No man’s life or property is safe while the Legislature is in session.” Condominiums, as a form of development and ownership in New York Sate, have experienced a good deal of success due, in part, to favorable method of property tax assessment. But, over the past several years, the New York State Assessor’s Association has continued to fiercely lobby the Legislature to repeal or modify the law calling for the use of the income approach in assessing condominiums Tax authorities assess most condominium properties in the state by the so-called “restricted” method, which values them on the income approach, as if they were rental apartment complexes. Units valued by this method are generally valued at discounts of 50% or more compared to those valued on the unrestricted market approach. The income approach to valuation for condominiums is unique to New York State. Few, if any, other states assess condominiums on any basis other than current market values. The reason for New York State’s singular status probably stems from New York City’s unusual development history. Cooperative apartment buildings started to develop in the 1880s. The city’s assessors were required to assure assessment equity. For example, picture two identical neighboring buildings: the first, a rental building, the second, a co-op. It would have been seen as unfair to assess the rental building on its rental income, while assessing the co-op on the market value of the apartment units, even if the rental income attributed to the co-op had to be hypothetical. Condominiums were created by statue in 1962. Now add a third identical building to the row-–a-–rental, a co-op and a condominium. Once again, it would have been inequitable to assess the rental building on the income approach and the co-op and condominium buildings on the market values of the individual units. The only means of achieving assessment equity would be to assess all three as if they were rental buildings. Identical or similar buildings should be similarly assessed despite their different forms of ownership.
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Equity was achieved through section 581 (1)(a) of the Real Property Tax Law, which provides that cooperative and condominium properties “shall be assessed…at sum not exceeding the assessment which would be placed upon such parcel were the parcel not owned or leased by cooperative corporation on a condominium basis.” This rather obtuse standard of assessment has been judicially interpreted as requiring that co-op and condominium properties be assessed as if they were income-producing properties. Presently, only low-rise condominiums – those with three stories or less – located in New York City, Nassau County and homestead class assessing jurisdictions are assessed on the market approach. However, they enjoy the benefit of being taxed on a lower class or homestead class tax rate. These rates ameliorate the effect of higher market value assessments for these low-rise condominiums. The changes proposed by the Assessor’s Association would greatly increase the assessments of most condominiums, but would apply a uniform tax rate to them. The result would be sharply increased taxes for most condominium units even though most owners purchased their units on the implicit assurance that the existing tax burdens and method of assessments would continue. No legislative changes have come to pass, thus far. Nonetheless, condominium developers must be proactive in working to defeat the proposed changes or the industry may suffer from the consequences of failing to do so. |
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William D. Siegel is a senior partner at a law firm Siegel Fenchel & Peddy, P.C. of Oyster Bay, NY. The firm is a member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at wds@nytaxappeal.com | ||