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I received a letter saying I’m not compliant with NYC's 421-a tax exemption requirements. What does that mean?

Long story short, it means you could face a huge increase in your property taxes next year. 

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Question:

I own a condo in NYC and received a notice that I am not in compliance with the requirements of the 421-a tax exemption program and could lose my benefits for the 2020/21 tax year. What does this mean, and what do I have to do?

Answer:

The short answer is likely going to sting, so let’s rip this bandage off early. 

“If you lose your 421-a exemption, you could go from paying a few hundred dollars to a few thousand dollars a year or more in property taxes,” says Jeffrey Rendin, a New York City real estate lawyer and partner at the firm Wagner, Berkow & Brandt

First, some background: Dating back to the early 1970s, 421-a is a significant tax incentive program that aimed to spur new residential development and create affordable housing by giving developers, and in turn, property owners, a partial tax exemption (aka tax reduction), for several years, even up to 25 years in some buildings. 

The program was revised in recent years “because the legislature wanted to refocus its benefits on creating rent-stabilized and affordable housing in the outer boroughs,” says Rendin.

In his former role as chief of enforcement of the New York State Attorney General’s Real Estate Finance Bureau, Rendin was a co-leader of the first major enforcement of the 421-a program in 2014-2015. The agency determined that some of the buildings that received these tax breaks only had a preliminary certificate of eligibility in which they estimated their construction costs.

However, once construction at those buildings ended, “a lot of developers fell off a cliff,” Rendin says, and never filed the final paperwork that needed to secure the benefits permanently, such as an architect’s certification that the building was actually built and what the final construction costs were. 

“So they weren’t giving tenants a rent-stabilized lease, and we thought that was a big problem,” Rendin says. “We helped restore rent-stabilized tenancies for thousands of tenants by identifying these buildings and developers who had to get in compliance of the law.” 

What do I need to do?

How does this affect condo and co-op owners with 421-a benefits like yourself? Well, the revocation will be building-wide, but you need to show the city that you qualify, which is why you and nearly 4,000 other property owners may have received a notice earlier this year from the city’s Department of Finance, which administers real estate taxes. The letter says if you don’t become compliant and provide any missing details, you risk having your 421-a benefits revoked, meaning you might have to pay higher property taxes—and perhaps back taxes even if you weren’t living in the unit when its 421-a tax exemption began.

“People who get this letter shouldn’t be intimidated, though they might be a bit cross because they’re just homeowners,” Rendin says. “The price you paid for your apartment was in the expectation that you’d have this significant tax benefit, and now you’re on the hook to potentially pay a lot more.”

While this certainly isn’t an issue you created, it’s a problem you and your neighbors need a lawyer to fix, and establish that you are a condo or co-op, and that your building was built in accordance with the city’s filings so you can preserve your tax benefit, Rendin says, because “who wants to pay several thousand dollars a year more in taxes?” 

Should your 421-a benefits be revoked for non-compliance, it’s unclear if you’ll be able to have them reinstated after providing the necessary information, but “I imagine this is an issue that will soon come into focus for a lot of buildings,” Rendin says.

He is currently working on a 421-a case for a small building in Brooklyn, where unit owners who had been paying a few hundred dollars in property taxes under the incentive are each now at risk of paying about $9,000 more because the developer never filed the final paperwork when construction was completed. 

“The developer’s LLC is dissolved, and known statue of limitations have elapsed, which it makes it really hard to pin them down to do what they should have done years ago,” Rendin says. 

Are NYC buildings with a 421-a tax exemption still a good deal?

There are two things you’ll want to do before buying in a NYC building touting its 421-a benefits, Rendin says. 

First, make sure the building has received its final certificate of eligibility, not just the preliminary one.

Second, remember that 421-a benefits don’t last forever, so be sure to check when they’re due to expire. For a condo or co-op, they’re typically in place for anywhere from 10 to 25 years, so “there’s still a lot of time on the clock for some buildings,” he adds. 

New York City real estate attorney Jeffrey Rendin is a partner of Wagner, Berkow & Brandt with more than 14 years of experience representing purchasers, sellers, developers, investors, banks and New York’s top regulator of condo and co-op development in all forms of transactions, litigation, and regulatory matters. He is the former Chief of Enforcement of the New York State Attorney General’s Real Estate Finance Bureau. To submit a question for this column, click here. To ask about a legal consultation, send an email or call 646-931-5711.