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How Co-ops and Condos Can Win Big Cuts on Their Property Taxes

Bill Morris in Legal/Financial on July 20, 2023

New York City

Building square footage, assessed valuation, property taxes, co-op and condo boards, tax certiorari lawyer.
July 20, 2023

The board at a 70-unit prewar co-op on Park Avenue, like its counterparts across the city, was looking for ways to reduce its property tax bill. Getting a tax certiorari lawyer to contest the city’s assessed valuation is the standard tactic. But what about contesting the city’s estimation of the building’s size — another prime factor in computing tax bills?

“Someone in the building knew the square footage of one floor,” says Ben Williams, the board’s lawyer and head of the property tax department at the law firm Rosenberg & Estis. “Since the building has no setbacks, we multiplied that number by the building’s 15 stories, plus the basement. We hired an architect to measure the building, and we were able to show that the city’s square footage was too high. The architect’s number was 13% lower than the city’s.” 

That’s powerful ammunition because square footage, along with assessed valuation and the tax rate, are pieces of the equation used to compute the final property tax bill. (It’s important to remember that co-ops and condos are assessed not on the market value of their apartments but on the value of comparable rental properties in the neighborhood.) Furthermore, this year the city raised the tax rate on Class 2 properties, which includes co-ops and condos, by 5.5% in order to make up for a cut in the tax rate (and final tax bills) for Class 4 industrial and commercial properties. Given all those factors, contesting a building’s square footage can become a valuable option. 

And it worked. “We were able to get an 11% reduction of the original $3.8 million tax bill,” Williams says. “We were also able to get the city to reduce their taxes going back six years. They got a $2 million refund.” 

So it turns out that size does, indeed, matter. And since one good turn deserves another, Williams turned his attention to a very different breed of client.

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“This was an 80-unit condominium in a relatively new, 20-story building near Gramercy Park,” Williams says. “What happens with new buildings is that the Department of Finance (DOF) figures the gross floor area from the developer’s filings with the Department of Buildings. They begin with the ‘net area,’ which is the total interior living space. Then the DOF will assign a gross square footage, which includes all common areas, such as hallways, lobby, stairways, laundry rooms, storage, elevator shafts. The typical ‘gross up factor’ from the net area is around 15%, which includes everything inside the exterior of the exterior walls.”

Here’s where the discrepancy — and the grounds for an appeal — came in. 

“The difference between the net area and the gross area was much larger than 15% — around 40%, an obvious error that tipped us off that this might be worth investigating,” Williams says. “We wound up getting the square footage reduced by 22%, and the DOF reduced the assessed valuation by 19%. The original total tax bill of $3 million was cut by $500,000, and tax bills were reduced by 15% per apartment. The average unit-owner’s tax bill went from $36,000 to $29,000.”

Williams, who is paid on a contingency basis, stresses that size-based appeals are a small percentage of the tax certiorari work he and his staff does. Some 95% of appeals are over the assessed valuation, while just 5% are based on such descriptions of the property as square footage, number of units and use of space. 

“There’s a valuable lesson here,” he says. “Boards should check their notice of property valuation, then they should talk to a tax certiorari lawyer and make sure the city has the building’s proper square footage. It’s a relatively small number of cases where this comes up, but it can save you millions of dollars.”

(Building size and use of space also affect energy-efficiency letter grades and carbon caps under Local Law 97, as reported here by Habitat.)

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