Publication Date: Autumn 1997
SIGNS CONDO LAW FACILITATING BORROWING
With Governor Pataki's signature in place, the condo borrowing bill thatCNYC
supported became Chapter 498 of the Laws of 1997. With this vital pieceof
legislation in place, lenders are now offering lines of credit tocondominiums,
enabling them to make needed repairs and improvements without imposing
large assessments on their unit owners.
Questions have been raised about whether individual unit owners may deduct
their portion of the interest paid on these loans. Because the law specifically
authorizes the condominium to borrow on behalf of the owners, assuming
other requirements were met, there is reason to believe that the I.R.S.
would recognize this deduction.
STUDY OF 1996 OPERATING COSTS
Since 1980, the Council of New York Cooperatives & Condominiums has
conducted an annual review of the costs of operating cooperatives and
condominiums in New York City. By comparing data from many member buildings,
CNYC develops annual statistical analyses that are helpful in determining
whether a building is operating at peak efficiency.
CNYC relies on its members, their management firms and their accountants
to supply the raw materials that make the annual Comparative Study of
Operating Costs a success. Anonymity of participants is preserved by assigning
code numbers to each property.
The Comparative Study looks at assessment and mortgage figures, and also
lists the maintenance cost. It then lists amounts spent per room on wages,
fuel, utilities, repairs and maintenance, insurance, management services,
administrative costs, water and sewer fees, property tax and debt service.
When possible, elevator maintenance and legal and accounting costs are
each listed separately. The Study also presents summary statistics, calculating
the averages and medians for each item, and the average portion of total
operating budget devoted to each category.
The 1996 Study includes data on more than 650 cooperatives and condominiums.
It will be published in early December and one copy will be sent to each
CNYC member cooperative and condominium and professional subscriber. Members
that participated in the Study will receive their code numbers so that
they can find their buildings' statistics. Additional copies can be purchased
from CNYC for $5.
COURT AFFIRMS ASSESSMENT METHOD FOR COOPERATIVES
State legislation passed in 1981 established New York City's present property
tax system. Section 581 of that Real Property Tax Law requires that an
income approach be used to assess cooperatives and condominiums for property
tax purposes. It says assessors must develop the assessment based on the
income stream of similar rental buildings.
Last year, the City of New York insisted instead upon a comparable sales
approach in valuing a small Brooklyn Heights cooperative. The cooperative
challenged this procedure and CNYC submitted a brief of amicus curiae
to support the cooperative.
New York State Supreme Court Justice Leonard Scholnick ruled for the
cooperative. He carefully reviewed the legislative history, and clarified
the intent of Section 581. Justice Scholnick noted that Section 581 was
passed precisely to keep assessors from using the selling price of each
unit within a cooperative in determining taxable value. He stated that
prior to the enactment of Section 581, assessors were not under any "constraint
to use any one course in valuing property."
An October 2, 1997, New York Law Journal article on this case states
that Justice Scholnick's ruling is the first opinion interpreting Section
581 since its enactment. It is significant in affirming that the City
cannot deviate from the assessment methodology described in Section 581
when valuing cooperatives and condominiums. A change in assessment methodology
would require changing the law.
DOES THE PROPERTY TAX ABATEMENT AFFECT 80/20?
The long-awaited property tax abatements have meant lower costs for qualifying
shareholders in many New York City cooperatives (see pages 4 and 5). For
most cooperatives this is unmitigated good news. In those few buildings
where considerable non-tenant stockholder income causes the board to be
constantly vigilant to ensure that "80% of the corporation's gross
income is from tenant stockholders", the question has been raised
as to whether the full property tax amount or the abated amount should
be considered in calculating the total maintenance paid by the shareholders.
CNYC has consulted professionals who advise that the corporation's real
estate tax expense is the tax net of the abatement and that maintenance
income is the maintenance net of the credit given to tenant shareholders
who own their eligible units.
THRESHOLD FOR QUARTERLY PAYMENT OF PROPERTY TAXES
Recent City Council legislation will, as of July 1, 1998, allow co-ops
and condos whose assessed value per unit averages less than $80,000 to
pay property taxes quarterly instead of semi-annually has provided cash
flow advantages for these buildings. The current threshold of $40,000
per unit had imposed the semi-annual payments upon a significant number
of co-op buildings and condo unit owners.