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Volume 11 - Opinions of Counsel SBRPS No. 69

Opinions of Counsel index

Residential-commercial urban exemption (scope) (conversion of property formerly used as nursing home) - Real Property Tax Law, § 485-a:

To qualify for the residential-commercial urban exemption, the owner of property formerly used as a nursing home must prove that the property was not used primarily for the furnishing of dwelling space or accommodations.

We have received an inquiry regarding the residential-commercial urban exemption program (RPTL, § 485-a). {1}  The assessor states that a developer is converting a former nursing home to a mixed use of rental apartments (90%) and offices (10%). The question is whether such a conversion of a former nursing home may qualify for the section 485-a exemption.

Section 485-a(3) provides that: “Upon the adoption of such a local law, non-residential real property, upon conversion to mixed-use property, shall be exempt from taxation and special ad valorem levies as provided for in subdivision four of this section” (emphasis added). Section 485-a does not set forth a definition of “non-residential real property” eligible for the exemption. The sponsor’s memorandum for the bill enacted as chapter 328 of the Laws of 2002, the legislation that originally adopted the section 485-a exemption (reprinted in 2002 McKinney’s Session Laws of New York p.1895), does not address whether a former nursing home may qualify as “non-residential real property.” {2}

However, section 485-a does indirectly indicate what constitutes “non-residential real property” by setting forth a definition of “residential construction work.” Section 485 a(1)(g) states: “‘Residential construction work’ means the creation, modernization, rehabilitation, expansion or other improvement of dwelling units, other than dwelling units in a hotel, in the portion of mixed-use property to be used for residential purposes.”

A similar provision applies to the business investment property exemption (see, RPTL, § 485-b(5)). {3}  The Appellate Division, Second Department, has considered whether property jointly used as a “nursing home” and a “health-related facility” qualifies as a “commercial, business or industrial activity” for the purpose of the business investment property exemption (Glengariff Corporation v. Board of Assessors of the City of Glen Cove, 128 A.D.2d 872, 513 N.Y.S.2d 793 (2d Dept., 1987)). The court concluded that “the party seeking the exemption must bear the burden of demonstrating that the [health-related] facility is not used primarily for dwellings and accommodations” (128 A.D.2d at 873, 513 N.Y.S.2d at 795). The court also stated that “in order for a HRF [health-related facility] to qualify for the exemption, it must be demonstrated that it is not used primarily for the furnishing of dwelling space or accommodations” (128 A.D.2d at 874, 513 N.Y.S.2d at 795).

In light of the Glengariff decision, in our opinion, the owner of the property that is the subject of this inquiry has the burden of proving that the property proposed to be converted to a “mixed-use” (as defined in RPTL, § 485-a(1)(e)), was not formerly “used primarily” for the furnishing of dwelling space or accommodations. If the owner/applicant is unable to sustain his/her burden of proof, we believe that the property is not eligible to receive exemption pursuant to section 485-a.

March 2, 2005

{1}  As originally enacted, section 485-a authorized cities with populations of less than 50,000 to enact the exemption. Effective April 24, 2005, the law has been amended (by L.2004, c.632) to authorize the exemption in all cities (except New York City), towns, and villages. As amended, however, section 485-a is still entitled “residential-commercial urban exemption program” (emphasis added).

{2}  RPTL, section 485-a, has twice been amended since its original adoption (L.2002, c.343 [which changed the effective date of the program] and L.2004, c.632 [discussed in endnote 1]). Neither amendment is relevant to this issue.

{3}  RPTL, section 485-b(5), provides in relevant part that “[t]his section shall not apply to property used primarily for the furnishing of dwelling space or accommodations to either residents or transients other than hotels or motels.”