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Volume 3 - Opinions of Counsel SBEA No. 7

Opinions of Counsel index

Nonprofit organizations exemption (charitable) (religious) (residence for elderly) - Real Property Tax Law, § 421:

Whether or not a particular housing facility is operated for charity and is eligible for exemption under section 421 of the Real Property Tax Law depends upon the facts of each case. If fees charged elderly tenants are sufficient to cover all or most of the costs of the facility there is no charity. In addition to satisfying the nonprofit requirement, the organization’s exclusive purposes and the exclusive uses of its property must be consistent with those enumerated in the section.

Our opinion has been requested concerning the taxable status of a duplex apartment complex for the elderly which the Lutheran Social Services plans to construct in a city.

Some of the pertinent facts cited are:

1. Approximately one-fourth of the total cost will be financed by a gift, and the remainder apparently by a mortgage, amortized over a period of 20 years, and presumably, payable out of rents received from the duplexes.

2. A rent of $135 per month will be charged, which will cover utilities and maintenance as well as amortization of the mortgage.

3. Tenant selection will be made on a “social and/or financial need basis” by a utilization review board made up of a social worker, supervising nurse, administrator, and local physicians.

The major problem centers around whether or not the facilities will be used exclusively for charitable or benevolent purposes. Under a strict construction of the Real Property Tax Law, the courts most certainly would hold that the operation of a housing project for the aged is not per se a charitable purpose. If this were so, the provision of section 422, which grants a tax exemption to the property of certain nonprofit regulated companies (limited-profit housing companies and housing development fund companies), used to provide housing for the aged of low income, would have been unnecessary (See, Educational Alliance Corp. v. Wagner, 28 App.Div.2d 832, 282 N.Y.S.2d 923).

These facts are not sufficient so that we can render an opinion that all of the apartments would be entitled to exemption under section 421 of the Real Property Tax Law. For example, there is no assurance that only elderly of low income will be accepted as tenants. We believe this to be absolutely necessary in order for the operation to be considered charitable and benevolent. Mere “social need” certainly would not qualify.

This would seem to be a harsh judgment in respect to a proposed venture which is so patently meritorious. However, a mere glance at the many recent out-of-state cases digested in 37 A.L.R.3d 565 shows that when litigation concerns unregulated housing for the elderly, the issues are many and most often on the borderline. In view of the fact that no New York cases have as yet been litigated so that a clear factual line exists, we believe that a definite opinion cannot be rendered on the basis of hypothetical facts unless these facts clearly show a charitable operation.

Whether or not a particular housing facility is operated for charity depends upon the facts of each case. For example, if fees charged the elderly tenants are sufficient to cover all or most of the costs of the facility (including acquisition costs), there is, in our opinion, no “charity”. On the other hand, where substantial deficits are incurred, which are made up by contributions, subsidies from the organization, and the like, and most of the tenants are unable to afford regular rental rates charged in comparable commercial apartments, then a charitable use would probably be found even though some fees are charged (American Russian Aid Ass’n. v. City of Glen Cove, 41 Misc.2d 622, 246 N.Y.S.2d 123, aff’d, 23 App.Div.2d 966, 260 N.Y.S.2d 589).

Finally, we wish to reiterate that compliance with the nonprofit requirements of section 421 is not, in itself, sufficient to qualify property for the benefits of the exemption.  It is of at least equal importance that the organization satisfy the requirements that its exclusive purposes and the exclusive uses of its property are consistent with those enumerated in section 421. In fact, the issue which is most often litigated is not the profit-making aspect of the property, but rather the question of whether the uses of the property are consistent with those enumerated in section 421 (see, Shrine of Our Lady of Martyrs of Auriesville, New York v. Board of Assessors of Town of Glen, Montgomery County, 54 Misc.2d 145, 281 N.Y.S.2d 544, modified, 40 App.Div.2d 75, 337 N.Y.S.2d 786, aff’d, 33 N.Y.2d 713, 304 N.E.2d 563, 349 N.Y.S.2d 993; People ex. rel. Watchtower Bible and Tract Society, Inc. v. Haring, 8 N.Y.2d 350, 170 N.E.2d 677, 207 N.Y.S.2d 673; People ex. rel. Ade1phi College v. Wells, 97 App. Div. 312, 89 N.Y.S. 957, aff’d, 180 N.Y. 534, 72 N.E. 1147).

August 17, 1972

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