In most, but not all, upstate New York municipalities, the date to file a real estate protest is the fourth Tuesday in May. Nevertheless, it is never too early to review and determine whether a tax protest is sensible. Here are a few considerations:

Business in a Box

For hotels, restaurants, bank branches and other retail, the value of the real estate is not the same as the profitability of the business. This reality has been settled New York law for more than 50 years, yet it is often overlooked. Depending on the property, experienced counsel with a proper appraisal can negotiate significant reductions from an assessed valuation that has been determined solely on the basis of a high mortgage, and other factors.

Costs of Development and Construction Don’t Always Equate to Actual Market Value

When evaluating “assemblage” sites, New York courts acknowledge that costs need to be carefully structured in relation to comparable sales and comparable leases. A recent Third Department decision in 2015 affirmed a retailer’s valuation and dropped $3 million from the assessed valuation.

Additionally, some “franchise specific” trademarked improvements, while expensive to the owner/user, may not equate to actual value for the real estate and may be deemed to be “trade fixtures.” Other improvements such as drive-thru lines, even under canopies, may not fully equate into “usable square footage.”

Read the Lease

Just because tenant leases provide for reimbursement to the landlord for taxes paid, does not mean that those items should be included in income. In fact, at least one court has recently held that such an inclusion “distorted the economic value of the property.” Additionally, early termination rights or negotiated rent reductions may not be obvious to assessors, but could substantially reduce assessed value. 

Selective Reassessment May Be a Civil Rights Violation

Occasionally, a large project is reassessed separately in the absence of a municipal-wide reassessment. The United States Constitution guarantees “equal protection of the law.” Several recent court decisions in New York have held that a municipality that selectively reassesses real estate may be guilty of a constitutional violation which implicates personal liability and liability for legal fees and other damages pursuant to pertinent federal law (42 USC 1983).

Property Condition Analysis

The condition of a building, whether related to deferred maintenance, “grandfathered” but outdated electric and plumbing systems, or the existence of asbestos or lead paint, can affect the market value and may suggest a need for substantial reserves. This could dramatically affect net operating income and, ultimately, value.

Zoning Status of the Property

Certain sites may have been approved prior to zoning changes and are “grandfathered” uses or areas. The current zoning status of the property can also dramatically affect value, so analysis of the site’s compliance with current parking, height, set back and side yard requirements, or permitted uses, all can significantly affect valuation.

Proper Vacancy Rate

In determining net operating income, it could be appropriate to question the appraiser’s assumption regarding vacancy rate. Are there substantial vacancies in the property? How aggressively has the site been marketed? Why are vacancies so significant? The answers can provide clues to a more accurate appraisal.

Preparing the Paperwork 

Now is the time to look at your last three years of financials, and assemble your deed, tax bills, capital improvements and other pertinent information. Not every site is appropriate for a tax protest, but a discussion with thoughtful counsel could very well pay dividends. Most experienced counsel will arrange to take a tax protest matter on a contingency fee so that attorneys do not get paid unless the case is successful in reducing the assessment.

Robert Wakeman, Esq. is a partner and Michael Hrankiwskyj, Esq. is an associate at Cullen and Dykman LLP, Albany, N.Y.