While conducting due diligence on behalf of clients in connection with co-op purchases, we have encountered situations where co-op corporations have instituted assessments on all of the tenants’ shares. While the existence of most assessments can be telling concerning the overall financial health of a building, a yearly assessment to offset the building’s real estate tax abatement is a typical practice in New York City and not an assessment that should concern a potential purchaser.
New York City provides a tax abatement for all residential co-op units, with the exception of units owned by sponsors, or owned by person who own more than 3 units in the development, and those used for non-residential purposes.
By law, these tax abatement savings must be credited to each eligible unit. In condos, the savings go to the condo owners and are reflected on the unit owner’s individual tax bill. However, in co-ops, the tax abatement savings go to the corporation which credits them to each eligible unit. Co-op boards typically elect to recapture the tax abatement for the general expenses of the building or to increase the reserve fund. To do this, co-op boards typically impose an assessment for roughly the same amount as the abatement, thereby effectively canceling the abatement.
For further information on NYC’s property tax abatement program, click here
Nahum is an associate attorney at the Law Offices of Jerome J. Strelov and concentrates on real estate matters.