It’s “Pumpkin Spice” latte time, which also means it’s time to file a supreme court petition for your unresolved New York City real estate tax assessment protest.  Annual New York City tax commission administrative applications must convert into supreme court petitions - by state law - by October 24th each calendar year (assuming you have not already accepted a proposed reduction).  Failure to file by the 24th effectively converts your protest into a pumpkin for that tax year.  

Despite increasing fears of a looming recession, too many client calls and emails are still laser focused purely on the probability, and timeframe, of a reduction instead of the protections and options provided by a supreme court petition.  In classic “penny-wise, pound-foolish” fashion, too many fiduciaries imprudently weigh avoiding a petition just to save on overhead (supreme court - via the county clerk – charges just $210 to purchase the required index number).  

This alarming approach is even less logical in cooperative and condominium situations where the cost burden is shared.  Consider a building with 100 apartments splitting a few hundred dollars to both protect your collective rights and perhaps even recoup many times that disbursement.  It only takes one owner to believe they are grossly over-assessed, and that a petition should have been filed for the building, or perhaps just their unit in the condo. I have received many calls, over the last several months in particular, from condominium unit owners that believe their unit is assessed out-of-line with comparable units within the same building.  This is almost always pursuant to the condominium declaration, but that does not prevent a problem and possible challenge in court.  In fiduciary situations, it is always wise to cover your assessment (CYA).

Another popular petition pitfall for property owners is solely looking in the rearview financial mirror. Experienced landlords know the city’s valuation models and how those models analyze their annual income and expenses.  Savvy landlords realize the city’s model is primarily trailing twelve months. But, any operator that has survived a down cycle should appreciate that the music rarely stops on March 1st (annual NYC tax commission filing deadline), or by the upcoming October 24th petition deadline. As anyone in real estate should know, a tenancy can go sideways at any moment. A recent article noted that a recent broker survey indicated roughly 20% of all retail space in Manhattan is vacant. More alarmingly, for context, the same survey indicated the 2016 figure was roughly 7%. Veteran landlords frequently file petitions, even if their property isn’t likely to receive a reduction, in case the property unexpectedly ceases performing at or above market.

For example, property X is a single tenant retail property performing very well based on a lease that commenced in 2015.  The owner of property X decides not to file a 2018/19 supreme court petition to preserve their protest rights, because the property is “performing well and the tenant is the one paying the tax increases.” However, on November 1st, the owner of property X receives written notice that the retail tenant is bankrupt and they vacate immediately.  Now, property X is losing all of its base rent and real estate tax overages, which resulted from higher rent collections in 2015 and 2016 (2017 income and expenses will affect your 2019/20 NYC assessments via the RPIE this coming January).  Property X is suddenly in distress and a new retail tenant, at equal rent or greater, is very unlikely in light of the present climate.

In the above example, the landlord will go without income and may very well have a long term vacancy, or have to accept much lower rent than the prior lease provided due to the declining retail market conditions.  It is important to clarify that each upcoming New York City tax year is valued as of January 5th that same calendar year (also known as the taxable status date).  Consequently, incidents that negatively impact a property’s value transpiring after January 5th may not be recoverable under strict constructionism. Nonetheless, legal options are invaluable under any circumstances.  Moreover, it’s very difficult for any judge to disregard a truly distressed situation simply because it transpires subsequent to an imaginary frozen moment in time.  Properly evidenced vacancies, arrears, storm damage, fire damage and many others situations have served as the basis for real estate tax reductions.

The moral of this assessment story is Supreme Court petitions permit legal and equity arguments if any significant negative events unfold after-the-fact.  In light of the dramatically rising retail vacancy situation, property owners should engage their certiorari counsel to thoroughly insulate their real estate tax liabilities regardless of present performance.

Peter Blond, Esq. is a partner at Brandt, Steinberg, Lewis & Blond LLP and the chair of the NYC Bar committee on condemnation & tax certiorari, New York, N.Y.