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Volume 11 - Opinions of Counsel SBRPS No. 124

Opinions of Counsel index

Assessments, generally (methods of valuation) (condominiums - removal of assessment restriction); Condominiums and cooperatives (methods of valuation) (removal of assessment restriction) - Real Property Law, § 339-y; Real Property Tax Law, § 581:

The local option in section 581(1)(c) of the Real Property Tax Law and section 339-y(1)(f) of the Real Property Law authorizing a municipal local law or school district resolution removing the assessment restrictions of sections 581 and 339-y from condominium units applies only to such units that have previously appeared on the assessment roll as dwelling units in other than condominium ownership.

Our opinion has been requested concerning a town and a village wholly contained within that town that have adopted local laws pursuant to section 581(1)(c) of the Real Property Tax Law that purport to remove the assessment restrictions of section 581 from all condominium units within the town and village. {1}  In our opinion, such local laws are not authorized.

Section 581(1)(c) provides:

The provisions of paragraph (a) of this subdivision [imposing assessment restrictions] shall not apply to a converted condominium unit in a municipal corporation, other than a special assessing unit, which has adopted, prior to the taxable status date of the assessment roll upon which its taxes will be levied, a local law or, for a school district, a resolution providing that the provisions of paragraph (a) of this subdivision shall not apply to converted condominium units within that municipal corporation. A converted condominium unit for purposes of this paragraph shall mean a dwelling unit held in condominium form of ownership that has previously been on an assessment roll as a dwelling unit in other than condominium form of ownership, and has not been previously subject to the provisions of paragraph (a) of this subdivision (emphasis added).

We discussed the background of the assessment restrictions of section 581 in 7 Op.Counsel SBEA No.81. Despite several legislative enactments since that Opinion was issued, including the addition of paragraph (c), that Opinion continues to be relevant. As we stated there, in simplest terms, condominium units are to be valued for purposes of the real property tax by using a capitalization of income approach or a cost approach. A comparable sales approach, based upon the sales prices of individual units, may not be used.

As noted in the previous Opinion, the assessment restrictions of section 581 (and Real Property Law, § 339-y) create de facto exemptions for residential condominiums. This agency has data showing that residential condominium units in some municipalities incur one-half the taxes incurred by comparably priced homes under conventional ownership. We have anecdotal evidence that high-end condominiums in the New York City metropolitan area incur one-third the taxes of comparably priced homes under conventional ownership. There is no evidence that this disparity was intended by the drafters of the Condominium Act (L.1964, c.82); however, such disparity is the result of proper adherence to the current law of assessment administration.

The first legislation that affected these assessment restrictions was chapter 800 of the Laws of 1983. Briefly, the sections were amended to provide, with certain exceptions, that residential condominiums would be classified as homestead in assessing units subject to Article 19 of the RPTL (and receive the homestead tax rate), but that these homestead condominiums would not also receive the benefit of the assessment restrictions. This chapter was apparently a reaction to 7 Op.Counsel SBEA No. 85, which had attempted to reconcile the provisions of Article 19 with the condominium assessment restrictions.

Chapter 293 of the Laws of 1997 added paragraph (c) set forth above. We believe that the genesis of the amendment was the conversion of existing homes held under conventional ownership to condominium ownership. This seems to have been a concern in the western part of the State. These conversions in turn may have been a result of the de facto exemption. Similar townhouse developments, seemingly identical to the outsider, incurred different tax liability based solely upon whether the units were organized as a homeowners’ association or a condominium development. Thus existing developments were being converted to receive the benefit of the assessment restrictions. We received anecdotal information that existing subdivisions under conventional ownership with detached houses on individual lots were also being converted to condominium ownership. When the bill was before then-Governor Pataki, we so advised him and noted that the bill would only apply to residential units that had previously appeared on municipal assessment rolls.

Our position has consistently been that the local option of section 581(1)(c) (and the identical option of Real Property Law, § 339-y(1)(f)), only applies to residential units that had previously appeared on the municipal assessment roll as residential units. {2}  These are the only units that the option to remove the restrictions can impact. The local option does not extend to what are usually understood as condominium conversion, i.e., converting an apartment house to condominium units, or to non-residential improvements that are converted to condominium units. It certainly does not extend to existing condominium units.

May 12, 2008

{1}  Section 339-y(1)(f) of the Real Property Law is identical to section 581(1)(c) of the RPTL. These provisions were both added by chapter 293 of the Laws of 1997. The local laws in question cited only section 581(1)(c). We believe, however, that our analysis applies to both provisions and that a local law or resolution adopted pursuant to either provision would have the result discussed in this Opinion.

{2}  For instance, in our Summary of 1997 Real Property Tax Legislation, we wrote:

“Chapter 293 enables municipal corporations, other than New York City and Nassau County, to provide that ‘converted condominiums’ (i.e., residential condominium units which have been converted to condominium ownership from conventional ownership) shall be assessed without regard to the assessment restrictions otherwise applicable to condominiums (RPTL, § 581(1)(c); Real Property Law, § 339-y(1)(f)).

“The general rule is that the sum of the assessments of individual condominium units must not exceed the value of the entire complex if it was valued as a single entity. The restriction tends to reduce condominium assessments by preventing the use of sales of units in the assessment process. (Note, however, that this restriction does not apply to condominiums in Class 1 in a special assessing unit or in the homestead class of an approved assessing unit which uses dual tax rates.)

“Chapter 293 allows local governments to decline to grant these benefits to converted condominiums, thereby removing the incentive to convert existing housing to condominium ownership to reduce taxes. Pre-existing condominiums are not affected by this change.”