The Mandate: Section 581 of the Real Property Tax Law and Section 339-y of the Real Property Law create a de facto exemption for most properties held in condominium or cooperative form of ownership. These laws, in essence, mandate that condominiums and cooperatives are to be valued for purposes of the real property tax by using a capitalization of income or cost approach. A comparable sales approach, which is used for most residential properties and is based upon the sales prices of individual units, may not be used.
The Cost: This mandated and arbitrary assessment restriction places an artificial cap on the assessment of condominium and cooperative properties, forcing assessors and appraisers to ignore market resale information which is usually the best indicator of property values. This law, in effect, results in a ceiling on assessments that is based not on a type of property, but on a classification of ownership. Consequently, you may have a single family home and a condominium that are physically identical and sell for the same price, but the property tax liability associated with each will differ significantly, sometimes by as much as 50%. See New York State Office of Real Property Services' Opinion of Counsel, Volume 11, No 124 (2008), which states: "[ORPS] has data showing that residential condominium units in some municipalities incur one-half the taxes incurred by comparably priced homes under conventional ownership."
Not only are condominium developments increasing in number, more and more communities are reporting that single family homes on large parcels of land are being classified as, and therefore assessed as, condominiums. A 2008 report issued by ORPS notes that, "Although condos traditionally have been developed in multi-family buildings or in clustered, town house-style developments, nothing in state law prevents single-family homes from being grouped as a condo development. All that's required is some commonly owned land or other assets."
As the number of people who take advantage of this loophole increases, the greater the tax burden that is shifted to the remaining taxpayers who are not in receipt of this preferential treatment. According to data collected by ORPS, between 2002 and 2007 the number of condominiums outside New York City increased by more than 14,000 units, compared to growth of 5,000 units during the previous five-year period. Based on 2007 numbers, there are over 100,000 condominium units outside of New York City and more than 160,000 units within the City of New York alone.
The Solution: Real Property Law § 339-y and Real Property Tax Law § 581 should be amended, so that market value -- rather than income-producing value -- becomes the valuation method for property held in condominium or cooperative form of ownership.
There have been numerous bills introduced over the years that have tried to address this issue. Most recently, a 2010 bill sponsored by Senator Elizabeth Little and Assemblywoman Sandra Galef would eliminate this inequity for such properties converted or constructed after January 1, 2011 outside of New York City and Nassau County. An excerpt from the memorandum in support of this legislation is right on point with the following statement, "Furthermore, the Office of Real Property Services, assessors and other local officials generally consider the restrictions an unreasonable state mandate which unfairly limits the revenue-raising abilities of local governments." If New York is serious about distributing property taxes equitably, this mandate should be repealed during the 2010 legislative session.