Local Taxation

Restriction on Assessments for Condominiums and Cooperatives

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. 

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.