Council of New York Cooperatives & Condominiums
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Financial Issues

Publication Date: Autumn 1997

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.

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.

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.

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.

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.


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