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Unraveling NYC Property Tax Law: Essential Insights for Real Estate Owners in the City

NYC Property Tax Law is an important issue for anyone who owns real estate in the city, particularly where a commercial real estate attorney can offer guidance. The system is complex and opaque, with many residents not understanding their property’s market value or assessment, much less their property taxes. This is largely due to the constant changes in rules, exemptions, and abatements, wherein a commercial real estate attorney can be a key player in making sense of the changes. The result is a highly inefficient and backward structure that often results in modest properties paying the highest property taxes, while multi-million dollar brownstones in Park Slope pay significantly lower property taxes than their smaller neighbors.

The City needs property taxes to fund essential services, including education, public safety, and infrastructure. However, the current system is inefficient, unfair, and disproportionately impacts low-income residents. As the City seeks to address these problems, there are numerous opportunities to make the property tax system fairer and more efficient. Having the guidance of a commercial real estate attorney can be invaluable during this process.

A key problem is the way the City calculates property tax bills. The process starts with the City’s determination of a property’s market value, which is calculated by comparing it to sales of similar properties in your neighborhood. This information is then used to determine the property’s assessed value, which in turn is multiplied by the class share to determine the property tax bill. A commercial real estate attorney can help property owners understand these calculations and ensure their accuracy.

Each year, the City Council sets property tax rates as part of the budget process. This includes the “class shares,” which are formulas codified in State law that require each of four classes of property (homes, coops/condos, small rental buildings with 10 or fewer units, and larger rental buildings) to pay a percentage of the total levy. A commercial real estate attorney is instrumental in helping property owners navigate these annual changes, and ensure they're in compliance with the set rates.

Another major factor in property taxes is the rate at which market value increases. While the City Council can limit the increase in a home’s assessed value through the homestead exemption and circuit breakers, these measures have not been effective at slowing market growth, which has increased by an average of 12 percent each year over the last decade. Commercial real estate attorneys can provide advice on these measures, and how best to utilize them.

Similarly, the 421g program was designed to encourage the conversion of commercial space into residential use in downtown Manhattan by offering a property tax abatement for new developments. The program reduced property taxes for the first 8 years post-construction for non-landmark buildings and 13 years for landmark buildings, after which the property became fully taxable. Commercial real estate attorneys can provide a better understanding of how programs like the 421g can benefit property owners.

In addition, the City should establish a single residential property class that would be simpler and more transparent, improve valuation relative to the market, and reduce inequities in tax burdens among similar properties. Finally, the City should reform exemptions to ensure that they are targeted at those who need them most. Commercial real estate attorneys can aid in these proposed changes, providing their expertise and guidance to those affected. 

New York Commercial Real Estate Financing

New York commercial real estate financing covers a variety of activities including acquisition, development, and refinancing of commercial properties. Unlike residential mortgages, commercial loans are backed by the real estate itself, not the borrower's personal credit. Major lenders that provide commercial real estate financing in New York City range from banks, investment funds to life insurance companies. A commercial real estate attorney can guide borrowers through the different sources of funding, which may include Commercial Mortgage-Backed Securities (CMBS), permanent financing, bridge loans, and mezzanine debt.

Recent years have seen the commercial mortgage market in New York impacted by rising interest rates, decreased office space leasing activity, and a lack of new construction. Despite these challenges, the Mortgage Bankers Association (MBA) forecasts a rebound in lending for commercial real estate. As per their estimates, this figure is expected to reach $872 billion, up from $856 billion in the previous year. A commercial real estate attorney can provide valuable advice and insight on navigating these market trends.

While banks have shown a reduced interest in originating commercial loans, large financing deals are still happening in the city. Despite a slowdown in office leasing, private equity firms are capitalizing on the multifamily market in areas like Brooklyn. Additionally, a number of major landlords are converting their assets to apartments or other uses. To fully comprehend and navigate these changes, a commercial real estate attorney can prove instrumental.

Regardless of whether you're seeking to finance multifamily, retail, office, or industrial projects in the Greater NYC area, expert guidance can prove invaluable. A team comprising commercial real estate attorneys and financing advisors can connect you with the right lender and secure the best terms for your project. This team can help you navigate the complex process of obtaining a commercial loan from start to finish. They bring extensive experience in all areas of commercial real estate and can handle all aspects of the financing process, including due diligence, closing, and reporting. To learn more about these services or to request a quote, reaching out to a commercial real estate attorney can be your first step.

The Role of a Commercial Real Estate Attorney in Escrow Arrangements

Consumers frequently participate in escrow transactions and entrust property or funds to an escrow agent. This process can sometimes be complex and may require the assistance of a commercial real estate attorney. This pamphlet, prepared by the New York Lawyers’ Fund for Client Protection, gives practical suggestions that will assist consumers in avoiding disputes and disagreements concerning the handling of escrow accounts and money. The suggestions are based upon New York laws, rules and court decisions.

A lawyer, especially a commercial real estate attorney, should avoid simultaneous roles as both a lawyer and an escrow officer in order to prevent conflicts of interest, or the appearance thereof. In the course of a real estate transaction, for example, a commercial real estate attorney may acquire information material to the escrow arrangement that should be communicated to all parties in interest. Such information does not constitute a confidence or secret, and it need not be kept confidential unless the escrow agreement specifically so provides.

Commercial real estate attorneys also should not agree to permit payments to themselves from escrow account interest earned by their clients. Such agreements, if made, violate Canon 5 because they place the lawyer in a position of dual loyalty to the client and other parties whose interests he or she is bound to protect.

The New York CPLR Rule 1349 requires that all moneys and proceeds realized as a result of forfeitures under Article 13-A of the CPLR be deposited into an asset forfeiture escrow account established, as deemed necessary by the village, town, city or county. Generally, the governing board of the municipality will establish such an escrow account. This account will be subject to the supervision of a commercial real estate attorney at the Village, Town, City or County Attorney’s Office, if applicable.

Whether an escrow agreement is valid or not depends on the performance of all its conditions. A commercial real estate attorney can be essential in ensuring that all conditions are met and that the agreement is valid. When an instrument is deposited in escrow, it passes beyond the control of the depositor and cannot be recalled, except in accordance with a court order. The deposit of an unpaid check in a bank escrow account triggers the obligation to file a bounced check report no matter whether the check is paid or not. If the underlying transaction is terminated before the deposit of a final settlement check, the depositor must notify the party who requested escrow and the escrow agent.

In a recent case, the U.S. Court of Appeals for the Second Circuit decided that New York’s interest-on-escrow law is preempted by federal mortgage laws, including the TILA, and is therefore unenforceable in that context. The Court’s holding was based on the argument that New York’s law interfered with “incidentals” of national bank lending and thus could not be justified by Congress in the language of TILA or its legislative history. This case, like many others, underlines the importance of having a commercial real estate attorney who is well-versed in both federal and state laws governing escrow. The Court’s decision, however, is not unanimous, and other members of the court disagreed with its conclusions. This case illustrates the importance of understanding and observing New York Escrow Rules, as well as knowing the general principles of federal and state law governing escrow. 

Sishodia PLLC

Sishodia PLLC | Real Estate Attorney and Estate Planning Lawyer | Asset Protection Law Firm | 1031 Exchange - NYC

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