Preparing for TC201 in 2021

The New York City (NYC) Department of Finance (DOF) is expected to set Tentative Assessed Values for all NYC Residential Apartment and Commercial Properties on January 15, 2021 for the July 1, 2021 through June 30, 2022 tax year. Considering that the DOF will base assessments for these properties on pre-COVID-19 2019 Real Property Income and Expense (RPIE) amounts and the budgetary challenges facing the City from COVID-19 revenue declines, it is not clear at this time to what extent the DOF would consider COVID-19 for reduction relief.

Given the substantial portion of total income that real estate taxes represent, and the decline in other tax revenue sources such as commercial rent tax, transfer tax, and sales tax, New York City may not be quick to reduce a significant revenue source like real estate tax. Owners and operators that have experienced significant decreases in post-COVID-19 rent revenues need to look more closely towards the coming NYC Property Tax Appeal process. There are some best practices that NYC property owners and operators can follow in addition to the filing of an essential income and expense schedule, to assist their representative attorney in a certiorari protest hearing.

Certiorari attorneys will need to explain significant declines in revenue to the NYC Tax Commission. Providing an explanation for the decreases supported by Rent Rolls, Paid Rent Reports, Delinquent Rent (Aging) Reports, and Vacancy reports to the attorney will improve their understanding and overall case with the NYC Tax Commission. Attorneys will also find it beneficial to have monthly reports to provide a detailed view of the 2020 operating year.

Providing the attorney with any negotiated lease information affecting the current and future years should strengthen an attorney‘s case for a hardship. For example, a landlord might negotiate the terms of an existing lease with a tenant to relieve a rental burden. This may take the form of reduced rents, deferred rents, or rent escalation adjustments. Projected rent decrease information, along with occupancy and vacancy information mentioned in the previous paragraph would be helpful to the attorney in making a diminished value case.

The tax commission reviews tax appeals for large fluctuations in expenses over the prior year, and excessive repairs and maintenance in relation to gross rents. The preparer of the income and expense report needs to keep in mind appropriate capitalization of building project costs and avoid excessive unsubstantiated reporting of expenses. Amounts exceeding these thresholds should be supported with sufficient schedules and documentation for substantiation with the NYC Tax Commission.

2020 has been a difficult year. Owners and operators can assist their certiorari attorney in preparing for a stronger property tax appeal by taking the steps discussed above. To learn about other tools to help prepare for the tax appeal process or other real estate tax matters, contact one of Citrin Cooperman’s Real Estate Practice professionals.