Legislative Updates: Pied-A-Terre Tax

In the inaugural episode of Expert Insights, Michael Wolfe is joined by Jane Menton, Geoff Mazel, and Stuart Saft to discuss the latest legislative and regulatory issues affecting New York’s co-op and condominium communities.

The conversation begins with New York State’s CLCPA climate mandate and New York City’s Local Law 97. The panel discusses changes to the state’s 2030 renewable energy targets, how those changes relate to Local Law 97, and what co-op and condo boards should be doing now to prepare for current and future emissions requirements.

The discussion then turns to recent legislation affecting co-op purchase applications, including the new 15-day timeline for determining whether an application is complete and the registered mail requirement that creates additional administrative work for boards and managing agents.

The panel also provides an update on the new J-51R program and its potential benefits for co-ops undertaking qualifying capital improvements before taking an in-depth look at the new pied-à-terre tax. They discuss how the tax is calculated, concerns about its application to co-ops and condos, unanswered questions surrounding implementation, and the steps boards and managing agents may need to consider as the law takes effect.

For co-op and condo board members, managing agents, attorneys, homeowners, and industry professionals, this episode provides a practical overview of some of the most important legislative and regulatory developments currently facing New York’s co-op and condominium communities.

Transcript

Why Co-Ops Need Advocacy

SPEAKER_03 0:00

Thank you for joining us for what we believe will be a wonderful evening of Kopen Kondo legislative updates. I call them wonderful because we're going to share the good, bad, and ugly about them. I won't call them wonderful necessarily from an administrative standpoint or even a monetary standpoint. And I wanted to introduce the people joining me this evening that will certainly discuss these legislative updates with all of you. And then I will also speak about Culks and Condos United of New York. And this is our inaugural expert insights, and we'll have more of these throughout the year. We'll have plenty to talk about. This evening I'm joined by Jane Minton. Jane began advocating for the Culp Condo community as a board member at Sunnyside Towers. She continually advances issues that affect Cop's affordability and longevity through live events, media, and conversations with elected officials. Also joining me is Jeff Mazell. He's a founding partner of Hankin and Mazel. His practice has been devoted to real estate law with extensive experience in cooperative and condominium law, litigation and sales acquisitions. Also a founding member of our organization, as well as Stuart Saft, many of you, who's a partner in Holiday Night. He chairs the firm's New York Real Estate Practice and co-chairs the firm's global condominium development financing and conversion practice. Stuart is the president of the co-op in which he lives. For those of you who do not know me, my name is Michael Wolf. I owned and operated Midborough Management, a large management company focusing on co-ops and condos and also some rental multifamily for 35 years. I chair the real estate board of New York's Residential Management Council. And I'm pleased to be with you tonight. And just to give you a little bit of background on how we even got here this evening. Stuart and I had been chatting for years, as well as Jeff. We all know each other for decades about what Stewart titles the Warren Co-ops and Condos. And proposed legislation, passed legislation, a lot of which did not take into account the effect or the adverse effect it would have on all of you. Again, both from a monetary standpoint and administrative standpoint. And it's affecting co-op boards, condo boards, managing agents, and the people that we all represent. And Corps and Condos United was formed because we wanted to make a difference. And we have been making a difference in our short time since we began in February, although we've been talking about it for years. Our goal is to advance the best interests of co-op and condo homeowners and advocate the legislation that promotes common sense, affordability, self-governance and stability. We're trying to protect all of you from harmful legislation, unfunded mandates, and regulatory pressures that threaten our quality of our life, how we live, how we act, how we pay for things. So we're working to safeguard and strengthen cooperative and condominium homeownership in New York City by advocating for legislation that recognizes. A lot of times we miss this, that recognize that residential cooperative and condominiums are vertically and horizontally stacked multifamily buildings that are owned by the occupants and not a landlord. Legislation should recognize these important models of homeownership and community and protect the long-term interests of the cooperative and condominium homeowners. So our key things, themes rather, are affordability, sustainability, compliance, government oversight, and legislative trends affecting the board's owners and property managers. So without further ado, let's get right into some of the topics that we have for you this evening. And if you saw the invitation, there was a focus on piano tear tax. And we're going to get into that and very deeply into that in

CLCPA Timelines Meet Grid Limits

SPEAKER_03 3:56

a bit. But I wanted to start off this evening with Jane and the CLCPA, the Climate Leadership and Community Protection Act, New York's landmark climate change law, enacted in 2019. So, Jane, why don't you give us a little bit of background about it? And this will also segue into a discussion about local law 97.

SPEAKER_00 4:17

So CLC, the CLCPA is the state's law that governs the transition of New York City's electric grid from its current fossil fuel-based technologies to renewable sources. The initial target was to be running 70% of the grid on renewable sources by 2030. So the major change that we had this legislative session, this budget session, was the governor saying we're not going to meet that target. We really need to make some major adjustments to this law. We need to be more flexible about our fossil fuel usage for the time being. We cannot at this point start decommissioning our fossil fuel plants. And she's she's kept the current targets for 2040. And she says that we're not going to make, we're still pursuing net zero for 2050. But for 2030, which is now four years away, we're not going to meet the initial target. So we had it really, we she didn't really have a choice. There we had to make some adjustment to that timeline.

SPEAKER_03 5:17

There's been so much chatter about this act, right? And also local law 97, how that ties into it. And we could talk, we'll talk a little bit about the grid and the state of the grid in New York City. But the CLSCPA is really the broader climate mandate. But the local law 97 is where we all feel the pain, right? The boards are feeling the pain, the shareholders and unitones are feeling the pain. How well are those two really aligned? And there are gaps, right? What do we need to flag here? And boards continue to struggle with this since it came out.

SPEAKER_00 5:52

The changes to the CLCPA don't actually affect local law 97. Local law 97, right now, has not been adjusted, amended, nothing has changed. It still exists in the its original form. So even though I would say, and I I really believe this, that they're totally intertwined, these two laws. If you're gonna say we're gonna push these mandates onto buildings, but if local 197 is going to basically encourage buildings to electrify, then the state, the the state of the electric grid at the state level is is they go together. Like you can't separate the two. We can't have we can't electrify buildings without knowing where that power is going to come from, how it's generated, et cetera. So even though the adjustments to the CLCPA have not at this moment in time changed anything about local law 97, there's a door that is open that says, listen, maybe we do need to start talking about making similar adjustments at the city level.

Local Law 97 Compliance Reality

SPEAKER_03 6:51

Chef, the fines started this year. And so we hear co-op boards are complying, right? The fines are much lower than it'll be after 2030. But how are boards complying? All you hear is screaming, right? How do I afford this? And what are mistakes do you see out there that boards are making?

SPEAKER_02 7:10

So the biggest mistake is doing nothing at this point. Do your due diligence, get your energy reports, and be prepared for 2030, no matter what's happening. The reason most boards are in compliance is first of all, generally speaking, co-ops and condos are good neighbors. And Michael, you've experienced this with whether it was LED lighting, whether it's converting to gas, insulation. I represented two of the largest solar installations in co-ops in New York City a few years ago. One of them, they estimated it was like planting 21,000 trees. That co-op is now would be subject to significant local law 97 finds. So local law 97 is it just looks at carbon reduction. It doesn't look at it's not a holistic approach. So you do have these uneven findings. So my suggestion for boards is stay ready. Things may move or they may not move. But if we have anything to say about it, we're gonna we're gonna change some of the some of some of the markers and important dates. I just also want to emphasize one more thing. Everyone who's on this panel, and probably everyone who's listening, we're for carbon reduction. We're for the environment. But there's a question of how do you do it and do it in a fair way for everybody, for all citizens in New York City, New York State, the world. And local on 97 has 45% of the city's buildings are exempt. And the only residents of the new of New York City who have to pay for local law 97 retrofits are Copen Condo owners. So that's why this community has rallied around this issue. Not saying we don't want to do it, but we want to do it in a way that's not gonna not gonna break the bank.

SPEAKER_03 9:07

So this is not a Local Law 97 webinar. We wanted to update you on the a little bit of the background and what we're doing as an advocacy group, right? We are working to delay fines, minimize fines, if they're fines at all. And we want to encourage all of you, this to Jeff's point, is doing nothing is a mistake. Get a carbon study, see where you stand, right? If you're a pre-war building, you probably have less problems than a building that has a lot of systems, but every building is different. So I think you just take a good look at what you're doing. But we want to assure you that this group, along with others, is advocating on your behalf to either get grants. We don't want lower interest loans because you have to pay back the loan. So we don't have a magic wand, but we're certainly working hard to delay penalties, reduce penalties, and hopefully get some grant money for you.

Board Application Clocks And Registered Mail

SPEAKER_03 10:01

Timing bill. So I know you were instrumental along with this organization organization to put the reasons bill to the side for a moment. But now boards have something else to comply with, right? They have to respond to an application, whether it's complete or not. And there's got to be legal exposure there, right? If a board or managing agent, or if you're self-managed, all I won't say intertwined, but not all buildings are created equally, and some use portals and some use paper, and some just use PDFs, and they don't have a portal they go on for applications. But now they have 15 days to advise an applicant whether or not the application is complete. And one of the most administratively burdensome aspects of this is they have to send that notice by registered mail or by email. So, what does that mean to the boards from an exposure standpoint? And it certainly means a lot more work.

SPEAKER_01 11:15

I'm not quite sure what the question was, but uh like I used to do in school, I'll answer the question I feel like answering. But before I do, I want to go back to the reasons bill and something we learned, the four of us were test testified before the city council. One of the things that we learned was that the HPD and the human relations groups were advocating, as they have for decades, limitations on co-op boards' ability to approve their members their owners. And all we heard for most of the session was how boards discriminate, which of course we've heard for decades. And finally, the one of the representatives from the city was asked how many human rights violations were filed against co-op boards in New York City in the preceding five years. And the gentleman from the city answered other questions, just like I'm answering a different question. And finally, when pushed by a member of the city council, admitted there had not been any filings of discrimination by co-op boards in the preceding five years. Jeff indicated at the when we talked about it that in previous, excuse me, in the previous five years, there weren't any discrimination filed against the co-ops either. And the last time I testified before the city council, which was 10 years ago, in the preceding five years, then there were no discrimination. So the council recognized the fact that they were about to legislate for something for which there was no basis whatsoever, and it was tabled again. But I think this is a very important lesson to be learned by boards, and that is they have to stand up for their rights. And in the case of co-ops, it's critically important that you have people living in the building who can pay their maintenance and assessments and who are going to comply with the rules, which obviously is what the city doesn't like about it. As far as the notifications, you even if you miss the deadline and react, don't react within the 15 days, you still have the ability to question the application and uh and seek additional information from the purchaser. And that's really important. The other thing that everybody should keep in mind is that the legislation that was enacted permits boards to not meet during the summer. And so every board should pass a resolution saying that they will not have any meetings during July and August. So the pressure to approve is reduced. Now, that doesn't mean the board can't meet for special meetings to deal with specific issues, but they don't have any scheduled meetings during the summer. The other thing that, Michael, you you keep discussing, and it's really important, is this obligation to send things by registered mail. And I think some of us didn't know that in in this day and age of FedEx that they there still was registered mail. And the problem is that registered mail is more expensive, it's more time consuming, and it requires a trip to the post office. So we really don't know who's being helped by this mandate. And I know that the two of you have spoken to many people about doing something about the registered mail aspect of it. And I think you should mention something about what you've been trying to do.

SPEAKER_03 15:22

So we contacted the bill sponsor about the registered mail component. And I want to emphasize the reason that we object for the registered mail component, because it really means somebody physically has to go to the post office and fill out a form, go to the post office. And registered mail also takes longer than regular mail typically, and even a certified mail envelope. So every time that 15-day window begins, and let me be more specific. So you get an application and your managing agent reviews it, or you review it as a self-managed board, and it's not complete. So within that 15 days, you need to notify the applicant or applicants that it's complete or it's incomplete. And if it's incomplete, you do that by email and registered mail. Now the applicant comes back and they send you some more documentation to arrive at a completed application, at least that's their goal. And round two, it's incomplete again. You're now in a new 15-day window, a new registered mail component, and a new email component. And this can go on and on. I wouldn't say indefinitely, but it could go on for quite a while. If you miss that, and you really should try not to miss that, the steward's point, you still have a 45-day window to now approve or deny that application. So now let's do a scenario. You get the application, it's complete, it's incomplete, and you go into the 45 days. You only enter the 45 days if it was incomplete because you missed the 15-day notification period. But in the perfect world, we're not going to miss that at all. And we'll be in our 45-day window. And you could have a 14-day extension to that, and you could have an additional extension with consent from the applicants. So you have substantial time to do this. But if you're a building that's super busy, we know you're a volunteer board. It could get really busy and you have a lot to do. So the timelines are something that the real estate community was asked about, and the industry as a whole was fairly comfortable with the time allotment that ended up being what the law is. But the registered mail component, I've said that five times this evening, is certainly something that we want to remove. So there's also some best practices for all of you. So certainly delegate the day-to-day tracking to your managing agent, but the board remains legally responsible. And then when the application comes in, if you're not sure and it's missing a piece of paper, and I've consulted with a lot of managing companies that called me and asked for advice, that they should have an automatic mailing and registered mail, email and registered mail, like day 10 or 12. Don't get caught in the holiday weekend. Don't get caught because you got too busy. Set a timeline for yourself. Again, if you're in a portal, it's a lot easier. But if you're using Excel or Outlook Reminders or Google Reminders, just get it out there early and make sure somebody can go to the post office. Don't be on day 15 and somebody called in sick and they had a bellyache or they just couldn't get to work and you missed the 15-day window. To Stewart's point, that that summer recess that you're allowed to do, just make sure that you adopt that in your minutes. That you're certainly not. I know one of the portals, domicile, which a lot of people use, they've actually modified their software for the management companies to be able to comply with it. What I didn't mention earlier, the QA is open. We're going to answer as much as we can live. Whatever we don't get to this evening, we could certainly send out an email to you with those questions answered.

J-51R Tax Relief Returns

SPEAKER_03 18:55

Jeff, let's talk about J51. So J51 doesn't apply to everyone, but those that do, it's really a fantastic benefit. And the original J51 program was set to expire tomorrow. And there's a new approved J51 program that was in the governor's budget. But I think it's important to give a little historical data about J51 and what the new J51R, as we call it, is going to do for a lot of cooperators out there.

SPEAKER_02 19:26

Yes. So J51, I happened to read the history about it. I guess I had nothing to do one day. And it actually came into play in the 50s. And it was designed for buildings to be able to convert from coal to oil. So you could see how far we've come in that time. And for many years, dozens and dozens of years, it was a widely used tool to help finance capital projects. For those of you who are not familiar with the specifics of it, basically when you do a qualified capital project, you take a percentage of the cost of the project and you're able to take it off your taxes. It was over a 12-year period. About, I want to say about 15 years ago, there started to be pushback on the program. And certain groups objected to wealthier buildings getting tax breaks. Sort of part of the general trend that we certainly see in New York City today. So the New York State legislature said, let's limit this bill to buildings, co-ops that have an average assessed valuation that started at $30,000 a unit. And basically, that's not fair market value, it's average assessed valuation. That's where you take uh the assessed value of your building, let's say it's 300,000 and there's a hundred units, that would be thirty thousand per report. So that limited the program from a hundred percent of the co-ops to under 20%, and maybe even lower. So since that day, various co-op groups and now us have been fighting for J 51 year after year, and I've been involved in three or four cycles. And we last cycle we able to get it up to 45,000, which was a big win. And this cycle there there was a lot of momentum for it. And the governor's budget, and this was her opening salvo, was sixty thousand, which my understanding brings in about thirty-five percent of the buildings, co-op buildings in New York City. And if you're in the Ad Boroughs, it's more it's a much more generous program. It's a hundred percent of the project is included, and you can you can you get tax credits over 10 years. There was some some punitive measures. One which if your building had violations, the HPD could put you into receivership, including co-ops. We fought that and we got it out. We uh tried to push it to 75,000 to get even more co-op in. The New York City Office of Budget Management said no. It's really, even though it's passed at the state level, New York City has to improve it. And just getting back to that before we get too excited, it still needs New York Council approval. New York City Council approval. Last time it took two years. We hope it doesn't take that long this time. We are, as a group, Copen County United, focused on this issue in the New York City Council, just like we were focused on it at the state level. We were involved with leadership in the assembly and the Senate on this bill, and we were intricately involved in all aspects of this bill.

SPEAKER_03 22:46

So, Jeff, although it doesn't affect all buildings, we're talking about 35% of the co-ops condos out there, that the old program was 70%. The hundred percent is huge, right? So we have a higher assessed value, we have more buildings included. We wish every building was included because there's certainly a correlation here between local 97 compliance and J51. There'll be programs within buildings to get like get money back, tax incentive to do a big win.

SPEAKER_02 23:12

Yeah, and just to your point also, some the green community, the environmental community, did a 180 on this bill this time and said we'd like this bill because it will help co-op buildings comply with local law 97 compliance projects.

SPEAKER_03 23:31

Yeah, before we started this evening, I think you were copying on it, Jeff. We received an email from a co-op board that had to do a few hundred thousand dollar per apartment assessment due to conditions within the building. So there's probably more to that story, but nothing's getting younger. So the buildings are aging, buildings need these funds for sure.

Pied A Terre Tax Explained

SPEAKER_03 23:51

Stuart, since the pandemic, which thank God is in the rear view mirror, I have never received more calls for interpretation of the Piedoter tax. And you and I probably spoke about this since it came out more than any other topic. And it is, I have a laundry list as we've been compiling in anticipation of the July hearing where the rulemaking will come out. And we, I won't even say cautiously optimistic, hopeful, hopeful that some of the questions we have will be answered, and some of the pain that's being inflicted on co-op boards, right? Certainly people that live in these apartments, and we're not here to rah-rah or take a sign on every aspect of Piedoter tax, but I do want to focus with you for a moment about the tax itself, and then really talk about the questions that have been coming in in a fashion we haven't seen, right? And we'll be more specific as we go along. So why don't you open up for us and take us through the Pierre de Terre tax and an overview of what it means?

SPEAKER_01 25:08

Certainly. And I am far less optimistic than you are that there's any relief coming whatsoever, because this the extraordinarily badly written statute really doesn't give a great deal of flexibility to the Department of Finance. And that's problematical. And based upon decisions we've seen over the years, for example, in the Skytown case, you can have an administrative agency contradicting what's in the statute. And I my fear is that we're going to have to live with this. This is just more than anything else, it's unfair to so many different levels of people. And if you want to read something interesting, the City Controller came out with a report about a month before indicating that based upon the experience in Vancouver, people's behavior is going to change. So that what the governor thinks is $500 million in revenue, the city controller thinks is probably more likely about $300 million in revenue. And in point of fact, it could wind up being less than $200 million in revenue. The problem is that if the revenue from the legislation isn't sufficient, the city could go back to the state and say instead of having the tax apply to $5 million homes, we think it should apply to $3 million or $2 million homes, which would create far more people who would be affected by it. The tax for the first two years is based upon 1% of market value based upon the way the city assesses co-ops and condominiums, which is not based upon any kind of valuation. It's based upon what tax the rental buildings are paying, and then what's a comparable building. On the $5 million, and the five million dollars is calculated based upon not anybody's appraisal, not on sales data, but on what the Department of Finance decides is the fair market value for the building. And then the tax in both phase one and phase two is allocated among the apartments based upon the percentage interest in the common elements in a condominium or the percentage interest in the shares in a COA. Now, what we all recognize is the fact that those percentages bear no resemblance whatsoever to the value of the apartments. In point of fact, in 1954, when Congress examined what became Section 216 of the code, it specifically said in its hearings that they would not base the percentages in co-ops on value, because then value would have to change each time an apartment sold. So they came up with a reasonable relationship. What's the reasonable relationship between the stock and the stock and the apartment? And that's what virtually every co-op in the city of New York has been, has been had its shares allocated based upon this concept of a reasonable relationship, and you have to get a letter from a broker or an appraiser saying what is the reasonable relationship. So the underlying calculation is flawed because what the legislature did and what the city plans on doing is basing base the tax on something that doesn't exist. Now I had a very interesting experience here, and we've all talked about this before. I saw a copy of the what I was told was the final version of the bill on the Friday before Memorial Day weekend. The bill came up for a vote on the Tuesday after Memorial Day weekend, and I immediately sent out a client alert saying this is what's going to be voted on Tuesday, and uh call your state senators, call your members of the assembly to do something about it. And I received two calls from clients on Monday, on Memorial Day, saying that they had spoken in one case to a state senator, in to another case to an assemblyman, and they were both told that Saft was wrong, and that what I said was in the bill was not in the bill. Now, I recognize that I can be wrong, and I recognize that perhaps I didn't see the final version of the bill. But on Tuesday, the bill that was passed and signed by the governor contained the exact language that I said was going to be in the bill, which means that either they didn't see the bill and it was just done by leadership, or they didn't they didn't read the bill, or they didn't understand the bill, or they just didn't feel like arguing with their constituents. Today, I was speaking to another client who told me that he too spoke to a member of the Senate leadership who told him that if you did if this if the co-op didn't pay the taxes, the co-op would be fined 50 percent. And that's just not true. The tax, the interest on unpaid real estate taxes is 18 percent. It's 50 percent if you file an incorrect document. So I'm not really sure where everybody got their information. The one thing that comes out of this is the fact that it is shocking that in this day and age, in this in the state of New York, where the legislature on a regular basis is passing bills requiring there to be more transparency, the legislative process is not in the slightest bit transparent.

Bad Drafting And Hidden Burdens

SPEAKER_01 32:15

None of us saw this in advance. I saw it the day before, but it didn't, that didn't make a difference. We couldn't comment on it. And whoever wrote the bill didn't know the first thing about co-ops and condominiums. Now, let me just take two more minutes and say that the issue isn't who's gonna pay the tax or who is not going to pay the tax. The issue is the incredible hardship and burden that's placed on co-op corporations, because the Department of Finance is gonna be sending the tax bill to the co-op and placing the burden of contacting the shareholder who the Department of Finance claims owe the tax on the corporation. And if the corporation does not pay the tax, the corporation will be will could have the building leaned and a interest on the tax accrues at 18 percent per annum. But that's not all. The other shocking part of this is that it was so badly written that if you, Michael Wolfe, pay New York City and New York State taxes and own two homes in New York City, you're gonna pay the tax on the home you have that's not a primary resident. Because these geniuses in Albany didn't exclude from the tax anybody who actually files a tax return. And I had assumed that just could not be, but nevertheless, it is.

SPEAKER_03 34:03

Although we have lawyers on Corps and Connors United, we're not giving a legal opinion, but we've also had dozens of conversations with different management companies, with different boards, with different organizations. So I want to I want to bring to your attention some really troubling aspects of this in addition to what Stuart has just shared with you. Number one is this is retroactive to January 5th of 2026. So what's gonna happen, here's certainty, at least from what we're reading now, is that on August 30th, the Department of Finance is gonna send notification to the owner of record. And when I say the owner of record, we're talking about the co-op corporation. Could be a managing agency male. We're not really sure, but it's not going to the shareholder and it's not going to the unit owner. In a condo, it's just cleaner, although still a problem, where you'll have this on your real estate tax bill, right? You have a separate tax of block and lot. That doesn't, that's not the case in a cooperative. So the scenario would be that this tax that's gonna be due in January of 27 is going to apply to apartments or the primary resident as of January 5th. But what if the apartment was sold since that time? And where is that owner? So the steward's point, the co-op corporation is gonna have a bill. And that bill is gonna be X. It could be 10,000, it could be hundreds of thousands of dollars, could be millions of dollars in certain buildings. The co-op corporation is charged with billing that person, and many of the corporate documents, governing documents, don't allow for it. Some attorneys have interpreted there's language along proprietary leases that a shareholder comply with applicable law, and whether or not that clause translates to you to be able to bill for it remains to be seen. There's no case law on it. But what I see happening is that co-op boards are gonna get their bill or the managing agent, and they're gonna bill shareholder or shareholders in a building. And that shareholder, if they're a non-primary, hopefully will pay the tax. And if they don't pay the tax, it's due from the co-op corporation. So what do you do today, right? What do you do in advance of all this? What do you do in advance of the July hearing? What do you do in advance of the bill coming out? The first thing you should do, and I'm addressing self-managing and managing agents who have started the process already, is go on to the Department of Finance's website, put in your blocking lot, you'll see the market value for the building. Very simple. Could be on a tax bill, but just go online. Take you 30 seconds per building. If you have a lot of buildings, take a little bit longer. But you will get the market value that's posted on the Department of Finance website. Divide that by the number of shares issued for a particular building, and now you have a share value. And you take that per share value, multiply Excel spreadsheet. If you're using accounting software, it should be very easy. You will determine which apartments are at the million-dollar threshold where the tax would be applicable. The other thing you have is those apartments that are deemed ineligible for the real estate called condo tax abate. So if you start there, it's really going to be a good sampling of who the tax will apply to. So you'll you probably need three different letters. You need a letter to your residents that are reading about it, that are joining us tonight, because we have a great attendance this evening. That dear residents or dear shareholders or dear unit owners, no one in this building will be subject to peer and tear tax in phase one because your assessed value is not over a million dollars.

Board Prep Steps Before Notices

SPEAKER_03 37:57

Then you need for the buildings that do have some apartments at or above, dear shareholders. We have analyzed your building. We've identified a group of apartments that will be subject to peer and tear tax of non-primary, and we're writing to you directly. And then you have a letter to those people. So you could see the administrative work that's involved in this, but get ahead of it. Know your buildings today. Some buildings will have no one, some will have a lot of them, and some may have one apartment in a building, especially buildings, maybe a brownstone where apartments were combined, or a building where somebody bought two or three apartments. So again, identification is key. What you can't do though, is you're not going to be able to identify those that may have not been eligible for the Colp Condo tax abatement, but they're still maybe living in an apartment or they're renting the apartment, or they have a qualified individual that's a family member that's living in the apartment. The problem that we're all screaming about is that if everybody knew about the January 5th date, maybe they could act differently. Maybe they would say, it's not my primary and I'm gonna rent it. Or it's not my primary, and my child or my stepchild or any of these qualified people defined in the law are living in a studio or one bedroom or two bedroom somewhere. I have this huge apartment and they're gonna live in my apartment now. So I'm not subject to the PNT tax. There wasn't any time to get ahead of it. And one thing Stuart, Jeff, and I have been speaking about, I've asked for their opinion from a legal standpoint, that I have said to management, many of the management companies that if I had a building, my advice to a board would be that if I saw an apartment that wasn't eligible for Kol Condo tax abatement and is it meets the criteria to be assessed the Pied tax, I would recommend escrowing and closing. And Stuart and Jeff, I don't know if you want to opine on that, whether that's legal, would you still do it? Since there's no case law, to me, that would be a best practice because the co-op's going to be left with that bill. So if that person moving out, they wouldn't charge to their shareholder. So what do you do in that case?

SPEAKER_01 40:09

I'll tell you three things. The first is that the bill contains a statute of limitations of six years. So at any point for six years after the closing, the the city can go back and audit the records of who should or should not have paid the tax. So this isn't something that just happens on one day. I'm not sure that your idea, although it's brilliant, of having an escrow is practical because you would have to establish a whole procedure and keep track of the escrow and figure out how much tax they're going to owe. And that would be based upon the uh the value of the apartment. There's two other things that I don't want to finish the discussion without mentioning. The first is that surprisingly, there is no due process in this bill. None whatsoever. You if you have any issue, you have to take it to the tax commission, which is not a court, doesn't have judges, and doesn't have jurisdiction over anything other than what the assessment should be for an apartment. So the as sh as shocking as that is, the point you made about the legislation that was passed at the end of May going back to January 5th, is uh it's an ex post facto law. And the legislature doesn't have the right to pass ex post facto laws. The final issue, and it's probably the most frightening part of the whole discussion, in in when de Blasio's term was over, he had a commission issue the blueprint on tax reform. And it was all very uh nice. They came out with a proposal that the taxes should be for co-ops and condos should be based upon value and not the system they presently have. In 2022, I wrote a client alert, which is still on my firm's website, if you want to go read it. And it hold it held that saying that you want the taxes to go to market is fine, but you have to figure out how this was done and how it's going to be done. And the issue I raised was exactly this: how you allocate the tax on the building to all the apartments. And my response was that you needed to come out with a block and lot for every single co-op apartment and send in somebody to appraise the apartments. You just can't magically come up with what the city has now done. The city in phase two has gone back to what De Blasio was suggesting in 2022. And that what's so frightening about this is that I think, and I may be the only one, but I doubt it, that within the next two years, the city is going to change the way it assesses co-ops and condominiums across the city and go to this valuation that they've included in phase two of the Petitare tax legislation and impose that on us. And if they do, our real estate taxes are going to go through the roof and based upon the fact that for a piece of legislation that the governor only Decided the last minute she was going to push through. The Department of Finance had a whole system already set up. They had the portal set up. They had the concept of how they were doing it. And what I think we've just seen is legitimizing something that doesn't work because when they go and change the tax system in two years, they're going to say this isn't something new. This was included within the pet tax bill. That's the most frightening thing, because that just doesn't affect wealthy people who aren't using their apartments for their primary residence. It affects every single co-op and condo owner in the city of New York. And that's what we have to be prepared

Due Process Gaps And Bigger Risks

SPEAKER_01 44:49

for. And we have to organize and we have to do something about it because our operating expenses are going to go through the roof.

SPEAKER_03 44:58

So speaking about organizing, just as a side note, we are creating a legal advisory board and a managing agent advisory board. So we're working on that. We can all work together on this. This is not about the four of us on the screen this evening. It's definitely about a movement for all of us. So let me go back to a couple of things. And I want to give you some highlights of what I've been hearing from different managing agents and boards and our own observations. We talked about the January 5th retroactive period. The lien would be, if the city placed the lien, would be on the entire building, not on that unit in the co-op building. The proprietary leases do not explicitly authorize the board to bill via the tear surcharge. Although I did mention that leases have a clause about applicable law and what your interpretation for those attorneys that are here this evening, or if you speak to your attorney, get your legal advice on what you should do. But I think doing nothing is certainly not the right move. If you're an attorney, there's a lot of closings. I'm curious to see what you're going to do when you're at the table and you're advising the client that's buying. Do you look up the record of the person you're buying from, whether they're primary or not? Somebody asked a question, I'm just expanding on what Stuart mentioned, that you can't own two primary residents. But if you own more than one and you rent it to a person that uses that apartment as their primary residence, the tax wouldn't apply the way we're reading this right now. But again, they have to be a primary resident. Can't be somebody that is not paying New York City state taxes. If once that notice is received, that 30-day window to appeal, you think you're wrong, or they're wrong actually, Department of Finance. The 30-day window starts from the day that the letter is released or the email comes, and we're trying to figure out where it goes and how it's coming, 30 days from that date, right? Not date of receipt. The other thing is these entity-owned units, LCs, trusts, partnership, corporate-owned, we have to figure out, or if you're going to appeal, who owns the majority of it. You can't have somebody that is a non-primary residence that's a family member, that lives in the apartment, and they own 1% of your apartment and they pay the tax won't apply. That's not the way the law is written. The other thing that we were thinking about is I'll give you a scenario. Today your apartment is assessed at a million fifty. Let's call it that. So you're just over the threshold and the tax is due. You go through the sortiary process. Jeff, you know this all too well. You go through the sortiary process and you're successful next year, or maybe you have a few years combined and you have a legal proceeding, and that million fifty now becomes nine twenty-five or nine fifty or nine ninety-nine, right? What's going to happen with that? You paid the tax already, you'll bill the tax, you get that money back.

SPEAKER_04 47:57

You're on mute, John. You muted.

SPEAKER_02 48:00

I forgot I was muted, sorry. No, I was gonna say, I don't think we have the answer to that. Certainly you'd be entitled the way the law is written now to a refund, but it it just goes to show how poorly drafted and all the conting most of the contingencies were not figured out. Michael, I was thinking while you were talking and Stewart, the six-year statute of limitations, I represent a lot of co-op boards. And right now the liability goes to the corporation, and I could just see getting a hundred or two hundred or three hundred thousand dollar tax bill five years after the fact when the shareholder is long gone. And that prospect and managing agents too that act as transfer agents. That's a frightening prospect. And I think one thing we need to look for is a way to protect the managing agents and the attorneys that supervise these transfers because the corporation can't be the tax police for New York City.

SPEAKER_03 48:59

And when the QA, Elliot, thank you. Stuart, Elliot wrote in the QA about amending governing documents, and you and Jeff have been saying the same thing. The question is it doesn't happen overnight. I think that most co-ops would pass this fairly quickly, considering the corporation as a whole is liable. So, Jeff, how do you think your co-ops would receive an amendment to the proprietary lease

Amend Leases And Update Management Deals

SPEAKER_03 49:25

for something like this? I guess the people that it doesn't apply to would vote in a second, and the people maybe it doesn't apply to may not, but most co-ops, for the condos are the newer condos, not to say there's plenty of co-ops that are high-end that this will apply to. And so Stuart, and if I may, let me just drip for a second. We called it high-end. And you said this is not a billionaire tax. No.

SPEAKER_01 49:52

One of the interesting things about the tax, and everybody should be aware of this, is that if you have, and it has nothing to do with somebody's income. It's all about the value of their home. If you have an older couple who've retired to a warmer climate but retained their home in New York, and they bought it 40, 50 years ago for next to nothing, it could exceed the minimum amount for the pit-a-tear tax. And they're living on retirement proceeds in another location, they come back to New York in the summer, they're all of a sudden gonna be get hit with a tax bill for a ridiculous amount of money. Please note that if the number is just $1 million, the tax is $40,000 a year. We're not talking about a minor tax. And this would, these are not the people that we were told this was going to tax. Somebody who's ultra wealthy, it's not a big deal. But I think the vast majority of people that we all know are living in apartments that have values before the appreciation of maybe one to three, one to four million dollars with inflation, they can get pushed over to the $5 million. And that's a real problem. But one thing, Michael and Jeff, before we we sign off, because I see we're getting short on time, I want to thank Jane Menton, who's sitting there in the corner, our legislative director. Jeffrey Michael and I have been friends for a long time, and we've been talking about doing this for a very long time. And our conversations got serious with Good Cause Eviction and with the Housing Security and Tenant Protection Act. And Jane came along when we started the organization, what, about five months ago, and she's been an incredible, integral part of everything we've doing. So I I want to thank you because you've just done an amazing job trans translating our gibberish about legal issues and management issues into actual policy.

SPEAKER_00 52:04

So thank you. Don't give me too much credit. I really can't believe I'm even on this panel sitting along from this ride. It's amazing. Michael, someone asked a question about how to get more involved with our organization. I was typing out an answer just now, but do you want to speak to that? I was gonna, or I can say something really quick.

SPEAKER_03 52:20

What I want to do is I want Jeff to just finish, I want to finish Pieter Tea tax. We gave you some takeaways on what to do. And Jeff, I just wanted to touch on realistically for a board to amend their governing documents, best and worst case scenario.

SPEAKER_02 52:34

Best case scenario, certain provisions. You probably would have to amend the proprietary lease. So for the most part, you're looking at what they call a supermajority, which is either two-thirds or 75% of outstanding shares. And that's a very high threshold. And unless you're giving money away or extending a proprietary lease, it's a difficult task. If a majority of the building is subject to the tax, they might not want to pass that. But I think generally speaking, at a sense of fairness, and if it's only a few, a few uh shareholders that are affected, it's work for the attorney, it's worked for the boards, but it's gotta get done because the law and the lawmakers are not helping us and they're not making this easy.

SPEAKER_03 53:22

But could you imagine a scenario where a board's gonna get this bill and they believe, right? It's not the the EOF decides who's primary, not the board, that they're not gonna charge that person on their bill.

SPEAKER_02 53:37

No, they will, but the question is how do I get to that point? Correct. Do I say the the advisor we read today from a well-renowned carp and common firm, applicable law applies? Do we say we have to amend the proprietary lease? I think Stu and I have both lean that way because you want it to be bulletproof. Because this is going to be a lot of money over over time. And if someone's subject to a $100,000 tax, it might be worth fighting. So you want to get your sh your house in order as quickly as possible once we get regulations and there is clarity.

SPEAKER_01 54:14

I so we we I think, Michael, let me just interrupt you for a second. I think it's critically important to amend the proprietary lease and probably the bylaws also, in order to give the board legal authority to do what they have to do here, because the law is so odd and so strangely written, and this is New York City, so anybody can get sued for anything. The litigators probably are already preparing the complaints, and they don't know who their plaintiffs are gonna be. But I also think the management agreements have to be modified and updated because a tremendous burden of all of this is gonna fall on the managing agents. And in order for them to handle the bulk of the issues involved, they need to have an obligation to do so and they need to be compensated. And I should note that I do not own any interest in any management company, but I think it's important that all of this be done because you don't want somebody later on turning around and suing the board and the board members and saying they violated the business judgment rule.

SPEAKER_04 55:25

You're on mute.

SPEAKER_03 55:35

Thank you very much. We'll have def different experts in our industry. So if you're a lawyer, an accountant, an insurance broker, please join our movement. Jane's gonna tell you how to do that. And I really want to thank all of you for attending this evening. If you have any other points about the Piedate tax in advance of the hearing, please email any of us, but Jane's emails on the invite or initial invitation, original invitation, rather. I have a laundry list that you can't imagine from all the management companies and the boards and different organizations. So we know what the issues are. We're

How To Join And Show Up

SPEAKER_03 56:11

gonna present them at the hearing, and we'll be able to issue probably an FAQ after that, a little more clarification. Thank you for joining us. And Stuart, you have a point, and then Jane, please let everyone know they could be involved.

SPEAKER_01 56:22

Michael, I just want to point out to the audience that we're not charging anybody for joining the organization. It's critically important that we represent the bulk of the million homeowners in New York, the city and the 250,000 homeowners in the state of New York in getting the legislation, the legislature to recognize that we are an important element of the city and state of New York, which they haven't done in the past. And we recognize that a lot of the boards don't have the money. And so we're just doing this ourselves. And we welcome everybody to join with us in this fight.

SPEAKER_03 57:05

And our funding is our own money and private funding. So we do this, we're giving back to the industry that's provided a lot for us over the last four decades. Jane, take it away. We'll close out everyone go to dinner. If we didn't get to, I think we answered all the questions in the chat. We'll get back to you on those.

SPEAKER_00 57:23

The best way to get involved, and I'm really glad that someone asked that question, is please join our mailing list. That's where we're sending out notices about events like these, where you can learn about what's going on and get the information that you need. It's where we send out information about our upcoming events. And the best thing that we can do is have a lot of people come to our events. That's where we show legislators there is a movement here. There are residents of New York City that are struggling, that are not being included in the conversation that's going on about affordability. And that is also where we send out notices about things like, hey, there's a there's a hearing on this bill on July 9th. We need we need a group of people to come down and testify how this is going to affect them. Tell your legislator now, this is your moment. So we're gonna be sending out all those notices and hopefully not bombarding people, but we do appreciate everyone who joins our literature campaigns, comes to our events, learns on expert insights, and that is how we're gonna move the needle. So that's my little closing spiel.

SPEAKER_03 58:22

Jane, excellent. Thank you all for joining us. We look forward to seeing you again. And this is all about all of us, not the four of us. Have a nice evening. Stay well.