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Volume 4 - Opinions of Counsel SBEA No. 38

Opinions of Counsel index

Urban renewal property (taxable status) (leased for private purposes) General Municipal Law, § 555:

Real property belonging to an urban renewal agency leased to private parties for private purposes is subject to taxation pursuant to section 555 of the General Municipal Law. An agreement between H.U.D. and the agency prohibiting the latter from making payments of taxes or in lieu of payments on the land does not affect the question of whether the property is taxable.

Our opinion has been requested in regard to the assessment and taxation of property belonging to a city urban renewal agency which has been leased to a developer.

About three years ago the agency leased a plot of land to a developer for the purpose of erecting an enclosed shopping mall. Under the lease, ownership of the improvements remains with the developer. Apparently, the agency is prohibited by H.U.D. (Federal Housing and Urban Development Department) from making payments of taxes or payments in lieu of taxes on the land. However the lease contains the following covenant for payment of taxes (Lease, Article 11, Section 201):

On and after the commencement of the Lease Term and so long as the Lease Term should not have expired or have been terminated pursuant to the Agreement, the Redeveloper covenants and agrees to pay and discharge, as if the Redeveloper owned the Property in fee simple, before any fine, penalty, interest or cost may be added, all taxes, water rents, and other public charges (hereinafter called Public Charges) which, if not paid, would be a charge, claim or lien upon or against the Property, or any part thereof, or any building, structure or improvement, or any part thereof, located on the Property, or upon or against the Annual Rent, or upon or against the Agency.

The assessor has been requested by the City’s corporation counsel to assess the property (land and improvements, we assume) on the taxable portion of the roll which is now being prepared. We are asked whether it is legal and proper to so assess this property for tax purposes.

Before answering this question, we would first comment on the effect of H.U.D.’s prohibiting the agency from paying taxes or in lieu of taxes on this property. The taxable status of property belonging to an urban renewal agency is controlled by New York State law, not by federal law, since the agency was created by the State, not the Federal Government. H.U.D. apparently has conditioned its assistance to the agency on an agreement that no payments can be made by the agency. This is only an agreement and does not affect the question of whether the property is taxable.

The taxable status of property belonging to urban renewal agencies is controlled by subdivision 1(b) of section 555 of the General Municipal Law. The pertinent part of that subdivision reads as follows:

Property so acquired by an agency, or by a municipality in behalf of an agency, shall be exempt from taxation until sold, leased for a term not exceeding ninety-nine years or otherwise disposed of in accordance with the provisions of this article or article fifteen of this chapter; . . . Upon the sale, lease or disposition of such property to any person, firm or corporation not entitled to an exemption from taxation or entitled to only a partial tax exemption such property shall immediately become subject to taxation in whole or in part, as the case may be, and shall be taxed pro rata for the unexpired portion of the taxable year. (emphasis added)

Section 556 of the General Municipal Law, among other things, authorizes an agency to lease its property for a term not exceeding 99 years to any person, firm or corporation at the highest marketable price or rental at public auction or by sealed bids.

The language quoted above from section 555 clearly provides for the taxation of property belonging to an agency which has been leased to private parties for private purposes; that is, unless the private parties are entitled to some exemption provided by law. It is our opinion, therefore, that the land leased by the urban renewal agency to a developer for erecting a shopping mall is taxable together with any building erected thereon by the developer.

Furthermore, it is our opinion that the land immediately became subject to taxation upon the date the lease was executed and should have been taxed pro rata for the unexpired portion of the taxable year.

According to the information furnished, the property has not been on the taxable portion of the assessment roll even though it was leased some three years ago. The developer is obligated to pay only those taxes which, “if not paid, would be a charge, claim or lien upon or against the property, or any part thereof, or any building, structure or improvement, or any part thereof, located on the property . . . .” In other words, the developer is liable only for taxes legally levied on the land and any building located thereon. (This is not a contractual promise to pay in lieu taxes.)

The extent to which taxes for prior years may be levied on the land and buildings erected thereon on any prior taxable status date depends upon the provisions in the city charter as to the assessment and taxation of omitted property. Under the Real Property Tax Law, omitted property (property which was erroneously treated as exempt) may be assessed on the current roll for only one prior year.

April 2, 1974

Updated: