Covering Your Taxes

Eyes over your shoulder. If a co-op has an underlying mortgage, its lender will want to review its annual budget. It’s now mandatory that we give it to them. One of the challenging items to budget for are property taxes. They can be anywhere from 30% to 50% of a co-op’s operating budget.

Property tax fix. Budgets are normally prepared in the fall for the upcoming year, and we won’t know the final property tax assessment until January. We have until March 1 to contest the number, and then by Oct. 21 we’ll get a final settlement agreement from the Department of Finance. 

Contesting the numbers. We work with a handful of tax certiorari lawyers to contest the assessment. They tell us what documents they need—for example, if a co-op allows shareholders to sublease their units, we give them leases so we can show how much the subletters are paying versus rents in comparable buildings in the neighborhood. If we can show that our subletters are not paying $5,000 a month but maybe $2,500 a month, that will bring down the assessed valuation. 

Some certainty. Once we have the settlement with the Department of Finance, we can finalize the operating budget. Toward the end of the calendar year we can tell shareholders how much we got the assessed valuation reduced. However, if there’s still an increase in the final tax bill, we tell them we’re going to have to increase their maintenance by X percent starting the first of the year.

Don’t kick the can. It's important that residents understand why we're having increases, and it's important for them to see that we're keeping up with the market, that we're doing our due diligence as a management company, and that the board is doing its due diligence so that the building is staying healthy. That way, if anyone ever wants to refinance, sell or buy into the building, it makes it easier, and it makes people want to buy into the building because it's a healthy building.