How to Challenge a Tax Assessment

Real property taxes are typically paid twice a year, on January 1 and July 1. The New York City Department of Finance (DOF) publishes its tentative assessment roll on January 15 each year. It's critical that your board look for the new assessment immediately, since you have only until March 1 to challenge it with the New York City Tax Commission.

In order to determine the value of a property, the DOF generally relies on the "income capitalization" method. This means that the department looks at the rental income and expenses for a building to determine the net operating income, and applies a capitalization rate to that to arrive at the value.

Wait a minute, you're asking — what rental income? This is a residential co-op/condo. The answer is that the DOF is required, by statute, to evaluate co-ops and condos as if they were rental apartment buildings. Because they have no residential rental income, the department first estimates the rent that could be charged for each unit as if it were a rental. This gives the department the estimated income. Then, the department reviews the expense reports — minus depreciation and mortgage interest — and determines the building’s reasonable and appropriate expenses. Income minus expenses constitutes the net operating income for assessment purposes.

Disagreements Over Value

When you challenge the assessment, the main areas of disagreement concerns the unit's rental value and whether the building’s operating expenses are reasonable and appropriate. If, after filing an application, the matter is not resolved at the tax commission level, the building must begin an action in the Supreme Court against the city. This action must be filed by October 24 — and you get no break if that date falls on a weekend since it does not get extended to the next business day, and so the action must be started no later than the Friday before.

For example, in a recent challenge to the tax assessments levied against the Trump Parc Condominium, which consists of 340 residential units at 106 Central Park South in Manhattan, my law firm worked with an appraiser who served as an expert witness to demonstrate that the DOF had overvalued the anticipated gross income for the residential units. Challenges to the valuations had been made every year. After trial, the court held that the proper income valuation was far less than that determined by the city. This resulted in a decision directing the DOF to reduce the assessed valuation by roughly $60 million for tax years 1994-95 through 2006-07, for an estimated actual tax savings of $9 million.

But be warned: Even though you may have challenged the assessment, you still have to pay it while the case is pending — especially since, if your request for a reduction is denied, the city charges 18 percent interest on any unpaid amount.

Boards can prepare the filings to challenge the assessment without the assistance of a lawyer, but this is not recommended. Most assessment challenges are handled by counsel on a contingency-fee basis, and the co-op or condo pays no attorneys' fees unless there is a reduction in the tax due (although out-of-pocket disbursements will often have to be paid, especially for annual filing fees).

As a board-member, it is important that you periodically visit the New York City e-payment center, NYCServ, and choose "Property Taxes by BBL". There you can search for your property by address or by borough block and lot, and see whether refunds or overcharges have been credited properly. You can also see, if there are tax escrows, whether the mortgagee (in a cooperative) has made timely real-estate tax payments. Just insert the address of the property, and you'll learn all about the city’s tax and assessment records for your building.

Dale J. Degenshein is a special counsel at Stroock & Stroock & Lavan.

Adapted from Habitat February 2008. For the complete article and more, join our Archive >>