August 15, 2022
Commercial leaseholders in New York take comfort in knowing that the NY Court of Appeals decided to move forward with an equitable property tax bill.
Commercial properties in New York have the right to fair assessment, which includes accurate valuation, classification and exemptions. If a taxpayer is being overcharged because of any one of these things, their only response is to file a tax grievance.
A property tax assessment can be challenged by an aggrieved party. The most obvious aggrieved party is the property owner. Still, case law and custom reasonably extends this right to include net tenants, contract vendees, mortgagees and others whose pecuniary interest are affected.
A net tenant’s right to challenge property taxes is fair, because a lease has a list of taxes and other expenses that typically falls on the tenant. A net tenant would not want to miss out on one of their most expensive items. A tenant may be present in the home and able to file their taxes before they expire, due to these benefits.
It is a new development that net tenants frequently file tax challenges in response to this legal interpretation and custom.
Unfair legislation made it so only the property owner could challenge a tax assessment.
Property tax assessments began to shift in favor of municipalities after the appellate NY Court of Appeals issued decisions that precluded a net tenant’s right to challenge assessments. For example, contract vendees could normally file a tax assessment challenge simply as a matter of due diligence; however, now they needed the seller (still the legal owner until closing) to meet the deadline and file their own challenge.
Unless you were the clear, titled owner of the property, it could be difficult to challenge an unfair tax assessment. You may need to chase down an uninterested owner’s cooperation and your case would be dismissed.
New York’s highest court, the Court of Appeals, recently clarified the law and restored fairness.
If a municipality is imposing high taxes, the person responsible for paying may file an appeal in court. In DCH Auto v. Mamaroneck, a car dealership occupied their property as a net tenant with an obligation to pay taxes, so they filed the grievance with the town and won because only owners of the property could do it, not tenants.
Forchelli Deegan Terrana LLP filed an amicus curiae brief to the court on behalf of their client, the International Council of Shopping Centers. This is a global trade organization containing thousands of commercial net lessees, who wished to see their voices represented in the court case.
The Court of Appeals ruled that a tenant such as DCH had the right to challenge its tax assessment, even without the owner filing himself. This validated a long-accepted custom: the taxpayer is the one who has the right to challenge its tax assessment, whether it is the owner, the tenant, or possibly a third party.
After the DCH Auto decision, new best practices have emerged for commercial taxpayers. First, all taxpayers need to review their assessments annually. Second, landlords and tenants should decide who has the responsibility to review and challenge the taxes. Finally, contract vendees should have a right to challenge property taxes.
If you are in the commercial real estate business, you should review your tax bill annually and speak with an attorney if you have any questions about it.