A recent announcement that 1,788 New York City property owners are being suspended from the 421-a tax break program, largely because of missing paperwork, has left condo boards and owners scrambling.
Real estate attorney Daniel Bernstein of the firm Rosenberg & Estis describes the mood of building and apartment owners as “concerned” about the change in status in the tax exemption program. “Even a temporary suspension could hurt” owners financially, he says.
That’s because property owners stand to save $66 million in taxes in 2018 through the program, according to the Department of Housing Preservation and Development. (Not clear on what 421-a is? Check out Brick Underground's guide to property tax abatements here.)
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So what happened? Essentially, many owners missed a filing deadline, despite multiple warnings, a simple but potentially expensive mistake if not corrected. In the past, the statute governing 421-a required developers to submit an application to HPD for a preliminary certificate of eligibility once construction started, and submit another application to HPD for a final certificate of eligibility when construction was completed. A new process eliminates the two steps and only requires a final certificate of eligibility.
On January 31st, the Department of Finance notified the 1,788 owners who did not meet the deadline that their 421-a tax exemption had been suspended. Affected buildings include rentals and condos, and range from small, three-family homes to large multifamily complexes. Those hit included owners of all 145 apartments at the luxury condo tower 56 Leonard, The Real Deal reports.
If you want to check the status of your building’s 421-a benefits, click here.
Here’s where the breakdown occurred, according to a spokesperson from HPD: Many owners failed to complete the final certificate of eligibility process. In some cases, buildings were sold and the new owners may not have been aware of the requirement. In January 2017, HPD increased resources and staff to help property owners complete the FCE application. Many owners took advantage of this assistance and were able to obtain the FCE, but some never reached out or did not follow through with the application.
So listen up, condo owners: You have until May 1st to submit your FCE to the New York City Department of Finance. If you do, your 421-a exemption will be reinstated on your July 1st tax bill. After May, the situation becomes serious: HPD will initiate revocation proceedings to recover back taxes for all the years non-compliant owners had been receiving 421-a benefits.
These proceedings are meant to put owners on notice and offer owners another opportunity to correct the problem, acquire the FCE, and come into compliance. But if an owner fails to bring the property into compliance during the revocation proceedings, HPD will revoke benefits retroactively all the way back to when the benefits started. There’s still a chance that owners could get the benefits reinstated at that point, but HPD would impose a fine and, for rentals, extend the period of rent stabilization.
Individual condo owners should not take action on their own, HPD says. Instead, owners should check with their condo board, who may have already contacted HPD for assistance. For more information on completing the FCE, click here.
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