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Question of Fact Whether Landlord Entitled to Pass On Increased Real Estate Taxes (Pursuant to a Tax Escalation Clause)—Increase Cannot Be Tied to Improvements Which Solely Benefit the Landlord

The First Department determined the landlord should not have been granted summary judgment.  Plaintiff-tenant sought a declaration that it was not responsible for increased real estate taxes related to improvements to the building which benefitted only the landlord and not the tenant. The matter was sent back for a determination whether and to what extent the improvements benefitted only the landlord:

The Court of Appeals has made clear that “[i]t is not the aim of . . . a [tax escalation] clause . . . to impose upon the tenant responsibility for increases in real estate taxes resulting from improvements on the property redounding solely to the benefit of the landlord” … .

The motion court incorrectly found that this principle was limited to circumstances where the improvement involved a vertical or horizontal enlargement of the building. … The improvement at issue is a renovation solely of the residential aspects of the building. Plaintiff is a commercial tenant. Our declaration here simply states the well settled principle regarding tax escalation clauses.  Enchantments Inc. v 424 E. 9th LLC2015 NY Slip Op 05409, 1st Dept 6-23-15

 

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Tax Payments Made Voluntarily Cannot Be Recovered Under a Mistake of Law Theory/Supreme Court Should Not Raise a “Non-Subject-Matter-Jurisdiction” Defense Sua Sponte

The Third Department determined Supreme Court properly denied petitioner’s request for a refund of real estate taxes paid re: optic cable installations located on private rights-of-way because petitioner had not protested the tax payments and made them voluntarily.  In addition, the court noted that the court should not have raised the statute of limitations defense sua sponte because the defense did not implicate subject matter jurisdiction:

… [U]nless subject matter jurisdiction is implicated, a court should not raise an issue sua sponte when a party is prejudiced by its inability to respond … . Here, because respondent Essex County failed to raise the statute of limitations as an affirmative defense in a pre-answer motion to dismiss or in its answer (see CPLR 3211 [a] [5]; [e]; 7804 [f]), it was improper for Supreme Court to raise it sua sponte … . * * *

… [W]e find no reason to disturb Supreme Court’s partial denial of the petition on the ground that petitioner failed to demonstrate that it paid the taxes involuntarily. To recover payments made under a mistake of law, as in the present case … , a taxpayer is required to show that the payments were made involuntarily … . This requirement ensures that governmental entities have notice that they may need to provide for tax refunds … . Here, petitioner fully paid all of the relevant taxes and offered no proof that it did so under protest or that such payments were otherwise involuntary … . Indeed, petitioner did nothing to indicate that its payments were involuntary until nearly 18 months after the final contested tax bill was paid, when petitioner submitted its RPTL 556-b correction applications … . Matter of Level 3 Communications, LLC v Essex County, 2015 NY Slip Op 04899, 3rd Dept 6-11-15

 

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Presumption of Validity of Town’s Property Tax Assessment Not Rebutted by Objective Data

The Court of Appeals, in a full-fledged opinion by Judge Graffeo, reversed the 4th Department’s determination that the Board of Managers of a condominium had rebutted the presumption of validity which attached to the Town’s property tax assessment. The Board’s appraisal was not based upon objective data which substantiated the calculations:

In an RPTL article 7 tax certiorari proceeding, “a rebuttable presumption of validity attaches to the valuation of property made by the taxing authority” … . Consequently, a taxpayer challenging the accuracy of an assessment bears the initial burden of coming forward with substantial evidence that the property was overvalued by the assessor. In the context of tax assessment cases, we have explained that the substantial evidence standard requires the taxpayer to “demonstrate the existence of a valid and credible dispute regarding valuation” … . If the taxpayer satisfies this threshold burden, the presumption disappears and the court “must weigh the entire record, including evidence of claimed deficiencies in the assessment, to determine whether petitioner has established by a preponderance of the evidence that its property has been overvalued” … . But where a taxpayer fails to rebut the presumption, the municipality’s assessor has no obligation to go “forward with proof of the correctness of [its] valuation,” and the petition is to be dismissed … .

…[T]he appraiser did not provide the sources of the income or expense figures related to each comparable (…[“Data on each property’s sale price, income, expenses, financing terms, and market conditions at the time of sale are needed.”]).

More importantly, the hearing testimony of the Board’s appraiser revealed that he had little to no confirmable data to support the income and expense numbers he employed to derive the capitalization rate. During his direct examination, the appraiser asserted that he relied on “very good” and “very strong” data that came from “certified sources.” On cross-examination, however, he conceded that he had no certified expense or income information and instead had relied on “forecasted economic indicators” with respect to the apartment buildings. In fact, he could identify only two documents in the record that provided any “limited historic operating expenses,” and this information was for only two comparables and did not correlate to the numbers used in the appraisal report. He admitted that he had no documents supporting his analysis as to the other two comparable properties. When pressed, he proffered that the relevant figures were based on his “personal exposure” to the complexes, i.e., his own unverifiable knowledge. But as the Appellate Division dissenters aptly recognized, “[a]n appraiser cannot simply list financial figures of comparable properties in his or her appraisal report that are derived from alleged personal knowledge; he or she must subsequently ‘prove’ those figures to be facts at trial” … . Simply put, the record before us affords no basis to check or test whether the net operating incomes for these four properties — and the capitalization rates adduced from them — were valid, or even in the ballpark. Matter of Board of Mgrs of French Oaks Condominium v Town of Amherst, 2014 NY Slip Op 02971, CtApp 5-1-14

 

Statutory Three-Year Moratorium on Seeking a Lower Tax Assessment Applies to New Owner of the Property

The Second Department, in a full-fledged opinion by Justice Dillon, determined that the three-year moratorium on tax certiorari proceedings following a reduced assessment applied to a subsequent purchaser of the land. The seller of the land successfully won a reduced assessment of the land due to chemical contamination.  The purchaser of the land then sought a further reduction, based upon a much lower appraisal of the value of the land, within the three-year statutory moratorium period:

Central to this appeal is the language, purpose, and legislative intent of RPTL 727(1), which states, in relevant part, that

“where an assessment being reviewed pursuant to this article is found to be unlawful, unequal, excessive or misclassified by final court order or judgment, the assessed valuation so determined shall not be changed for such property for the next three succeeding assessment rolls prepared on the basis of the three taxable status dates next occurring on or after the taxable status date of the most recent assessment under review in the proceeding subject to such final order or judgment” (RPTL 727[1]). * * *

What distinguishes these matters from many tax certiorari proceedings is the change in the property’s ownership … . RPTL 727(2) sets forth certain circumstances under which property assessments may be challenged despite the three-year moratorium, mainly involving revaluations of all properties on a municipal entity’s assessment rolls, physical changes to the property, zoning changes, and other recognized exceptions not relevant here (see RPTL 727[2][a-I]…). These recognized exceptions address situations where changes in circumstances defeat the statute’s purpose of locking in judicially settled assessments to maintain the status quo, because the changed circumstances themselves upset the status quo … .

A change in a property’s ownership is not listed in the statute as an exception to the three-year moratorium of RPTL 727(1). Under the doctrine of expressio unius est exclusio alterius, the presence of exceptions in RPTL 727(2), without inclusion of a property sale exception among them, must be inferentially construed as the Legislature’s intent not to except from the three-year moratorium circumstances where property is sold to a new owner… . Matter of ELT Harriman, LLC v Assessor of Town of Woodbury, 2015 NY Slip Op 03356, 2nd Dept 4-22-15

 

Failure to Personally Serve Petitions for Tax Assessment Reductions as Required by the Real Property Tax Law Mandated Dismissal of the Petitions

The Third Department determined the petitions seeking a reduction in tax assessments should have been dismissed because they were served by certified mail.  The controlling statute, Real Property Tax Law (RPTL) 708 (1) requires personal service.  Service by certified mail was not a technical defect which could be overlooked:

RPTL 708 (1) required petitioners to personally serve the designated assessment officer, which they admittedly failed to do, and — as this Court previously has observed — “the statute. . . does not permit service by certified mail” … . Further, the case law makes clear that “CPLR 2001 may be used to cure only a technical infirmity” … , and the Court of Appeals has cautioned that “simply mailing the [relevant pleadings] to [a] defendant . . . would present more than a technical infirmity, even if [the] defendant actually receives the [pleadings], inasmuch as [mailing] in general introduce[s a] greater possibility of failed delivery” … . In this regard, we reject petitioners’ assertion that, because the relevant pleadings were served via certified mail, as opposed to first class mail, the admitted service defect may be said to fall within the realm of a technical infirmity. Simply put, inasmuch as petitioners’ service was defective, Supreme Court should have granted respondents’ motions to dismiss the petitions. Matter of Karl v Martin, 2015 NY Slip Op 02824, 3rd Dept 4-2-15

 

Stipulation to a Reduced Tax Assessment Freezes the Assessment at the Reduced Level for Three Years by Operation of Statute

Choosing not to follow the 3rd Department, the Fourth Department, in a full-fledged opinion by Justice Centra, determined a stipulation to a reduced property tax assessment is equivalent to a judicial reduced assessment and is frozen at the reduced level for three years pursuant to Real Property Tax Law (RPTL) 727:

RPTL 727 (1) provides in relevant part that, “[e]xcept as hereinafter provided, . . . where an assessment being reviewed pursuant to this article is found to be unlawful, unequal, excessive or misclassified by final court order or judgment, the assessed valuation so determined shall not be changed for such property for the next three succeeding assessment rolls prepared on the basis of the three taxable status dates next occurring on or after the taxable status date of the most recent assessment under review in the proceeding subject to such final order or judgment. Where the assessor or other local official having custody and control of the assessment roll receives notice of the order or judgment subsequent to the filing of the next assessment roll, he or she is authorized and directed to correct the entry of assessed valuation on the assessment roll to conform to the provisions of this section.”

…[T]he statute imposes a three-year freeze of the assessment where an order or judgment is issued determining that the assessment is unlawful, unequal, excessive, or misclassified … . Where, as here, there is a stipulation between the parties agreeing to a lower assessment, the stipulation has the same effect as a judicial determination that the assessment is unlawful, unequal, excessive, or misclassified … . The three-year freeze applies to the “next three succeeding assessment rolls” from the “date of the most recent assessment under review” (RPTL 727 [1]). Here, the assessment under review was the 2007 tax year, and therefore the next three succeeding assessment rolls, i.e., from 2008 through 2010, must have that same assessment. The second sentence of RPTL 727 (1), which was added a few years after the statute was enacted, specifically addresses the situation in which the assessor receives the order or judgment after the next assessment roll has already been filed. In that case, the assessor is directed to correct the assessed valuation “to conform to” the requirements of RPTL 727. Once the assessment has been corrected, the property owner may make an application for a refund (see RPTL 726 [1] [c]). Therefore, the application of RPTL 727 (1) in this case resulted in an automatic reduction in the assessment for the 2008-2009 school tax year, without the need for any filing of a tax certiorari proceeding by petitioner.  Matter of The Torok Trust v Town Bd. of Town of Alexandria, 2015 NY Slip Op 02632, 4th Dept 3-27-15

 

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Garage Not Used Exclusively for an Exempt Purpose Not Entitled to Tax Exemption/Supreme Court Should Not Have Deemed the “Statement of Undisputed Material Facts” to Have Been Admitted by the Respondent, Despite Respondent’s Failure to Provide a Paragraph by Paragraph Response As Required by the Rule

The Fourth Department determined that property (a parking garage) was not entitled to tax exempt status because it was not used exclusively for an exempt purpose, noting that parking for private-practice physician’s offices was not exempt (parking for a hospital is). The Fourth Department further held that the respondent city did not admit to the petitioner’s “Statement of Undisputed Material Facts,” even though the city did not submit a paragraph by paragraph response as required by the relevant Rule of the Commercial Division:

It is well settled that, pursuant to the RPTL, “[r]eal property owned by a corporation or association organized or conducted exclusively for . . . hospital . . . purposes . . . and used exclusively for carrying out thereupon . . . such purpose[] . . . shall be exempt from taxation” (RPTL 420-a [1] [a]). Here, respondents concede that petitioner is organized for an exempt purpose, as a hospital, and thus only the second prong of the statute is at issue. “[T]he test of entitlement to tax exemption under the used exclusively clause of [RPTL 420-a (1) (a)] is whether the particular use is reasonably incident[al] to the [primary or] major purpose of the [corporation] . . . Put differently, the determination of whether the property is used exclusively for the statutory purposes depends upon whether its primary use is in furtherance of the permitted purposes” … . “The burden of establishing that the property is entitled to a tax exemption rests with the taxpayer” … . Additionally, when a taxpayer in a tax certiorari proceeding seeks summary judgment, “it is necessary that the movant establish his cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in his favor . . . , and he must do so by tender of evidentiary proof in admissible form” … .

Here, we agree with respondents that petitioner failed to establish that the primary use of the subject parcels is for exempt purposes, and thus it failed to meet its burden on the motion. Indeed, the evidence submitted by petitioner in support of the motion established that an undetermined portion of the people who used the garage did so for purposes associated with nonexempt uses such as the adjacent private physicians’ offices. Inasmuch “[a]s the private practice of medicine by a hospital’s attending physicians is primarily a commercial enterprise, and such physicians’ offices are not entitled to a tax exemption under RPTL 420-a . . . , the parking spaces subleased to those offices cannot be said to so further the hospital’s purposes as to create an entitlement to an exemption” … . * * *

…[W]e conclude that the court abused its discretion in deeming respondents to have admitted all the information in petitioner’s “Statement of Undisputed Material Facts” submitted pursuant to Rule 19-a of the Rules of the Commercial Division of the Supreme Court ([hereafter, 19-a Statement] see 22 NYCRR 202.70 [g] [Rule 19-a (a)]). The 19-a Statement was merely an almost verbatim repetition of an affidavit submitted by one of petitioner’s employees in support of the motion, and respondents clearly disputed the content of the information in it. Further, petitioner failed to submit sufficient evidence in admissible form in support of the 19-a Statement, as required by the Rule (see 22 NYCRR 202.70 [g] [Rule 19-a (d)]; …). Although “the rule gives a motion court the discretion to deem facts admitted, the court is not required to do so” … . Consequently, although “it would have been better for [respondents] to submit a paragraph-by-paragraph response to [petitioner’s] statement” as required by the regulation (… see 22 NYCRR 202.70 [g] [Rule 19-a (b)]), under the circumstances the court abused its discretion in deeming the entire statement admitted. The evidence submitted in support of petitioner’s motion failed to eliminate all “triable issues of fact and the court was not compelled to grant summary judgment solely on the basis of blind adherence to the procedure set forth in Rule 19-a” … . Matter of Crouse Health Sys., Inc. v City of Syracuse, 2015 NY Slip Op 02258, 4th Dept 3-20-15

 

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Tax Exemption Properly Eliminated for Airplane Hangar Not Held for Public Use

The Third Department determined an airplane hangar, previously tax-exempt, was properly deemed taxable by the town assessor because it was not held for public use:

Where, as here, a municipality decides to eliminate a previously granted tax exemption, it has the burden of “‘proving that the real property is subject to taxation'” … . Faced with the burden of demonstrating that petitioner was not eligible for an exemption inasmuch as the hangar, as is relevant here, was not “held for a public use” (RPTL 406 [1]), respondents had to show that the hangar was not “‘occupied, employed, or availed of, by and for the benefit of the community at large'” … . That a private corporation “derives a benefit or that [a] county has leased the property to a private party does not by itself defeat the exemption” … . A determination that a parcel is exempt from real property taxation turns on whether it has a “‘public use’ . . . that enhances the health, education, safety, or welfare of the residents of the municipality” … .

The record reveals that the hangar is locked at all times and is not accessible to members of the general public; access to the bays is strictly limited to petitioner’s three members and parties who execute rental agreements with petitioner. Matter of Hangair, LLC v Hillock, 2015 NY Slip Op 01850, 3rd Dept 3-5-15

 

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ALTHOUGH THE STATUTE STATES THAT EMPIRE ZONE REAL PROPERTY TAX CREDITS ARE AVAILABLE WHEN THE TAX PAYER MAKES DIRECT PAYMENTS TO THE TAXING AUTHORITY, PETITIONERS WERE ENTITLED TO THE TAX CREDITS EVEN THOUGH THE PAYMENTS WERE MADE FROM A MORTGAGE TAX ESCROW ACCOUNT (THIRD DEPT).

The Third Department, reversing the Tax Appeals Tribunal, determined petitioners’ were entitled to Empire Zone real property tax credits even though the tax payment were mortgage by Wells Fargo from a mortgage tax escrow account. The Tax Law requires “direct payment” to the taxing authority:

… [A]lthough Tax Law § 15 (e) (3) contemplates a “direct payment” of real property taxes from the lessee to the taxing authority, we find that, under the particular circumstances presented here, [the lessee’s] use of a mortgage tax escrow account for the payment of real property taxes did not preclude petitioners from claiming the subject [Empire Zone] real property tax credits. Matter of Balbo v New York State Tax Appeals Trib., 2018 NY Slip Op 05540, Third Dept 7-26-18​

TAX LAW (EMPIRE ZONE, ALTHOUGH THE STATUTE STATES THAT EMPIRE ZONE REAL PROPERTY TAX CREDITS ARE AVAILABLE WHEN THE TAX PAYER MAKES DIRECT PAYMENTS TO THE TAXING AUTHORITY, PETITIONERS WERE ENTITLED TO THE TAX CREDITS EVEN THOUGH THE PAYMENTS WERE MADE FROM A MORTGAGE TAX ESCROW ACCOUNT (THIRD DEPT))/MUNICIPAL LAW (EMPIRE ZONE, ALTHOUGH THE STATUTE STATES THAT EMPIRE ZONE REAL PROPERTY TAX CREDITS ARE AVAILABLE WHEN THE TAX PAYER MAKES DIRECT PAYMENTS TO THE TAXING AUTHORITY, PETITIONERS WERE ENTITLED TO THE TAX CREDITS EVEN THOUGH THE PAYMENTS WERE MADE FROM A MORTGAGE TAX ESCROW ACCOUNT (THIRD DEPT))/REAL PROPERTY TAX LAW  (EMPIRE ZONE, ALTHOUGH THE STATUTE STATES THAT EMPIRE ZONE REAL PROPERTY TAX CREDITS ARE AVAILABLE WHEN THE TAX PAYER MAKES DIRECT PAYMENTS TO THE TAXING AUTHORITY, PETITIONERS WERE ENTITLED TO THE TAX CREDITS EVEN THOUGH THE PAYMENTS WERE MADE FROM A MORTGAGE TAX ESCROW ACCOUNT (THIRD DEPT))/EMPIRE ZONE (EMPIRE ZONE, ALTHOUGH THE STATUTE STATES THAT EMPIRE ZONE REAL PROPERTY TAX CREDITS ARE AVAILABLE WHEN THE TAX PAYER MAKES DIRECT PAYMENTS TO THE TAXING AUTHORITY, PETITIONERS WERE ENTITLED TO THE TAX CREDITS EVEN THOUGH THE PAYMENTS WERE MADE FROM A MORTGAGE TAX ESCROW ACCOUNT (THIRD DEPT))

Criteria for “Charitable” Exemption to Real Property Tax for Provider of Housing for the Elderly Explained

In finding there were questions of fact about whether petitioner, a provider of housing for the elderly, qualified for the “charitable” property tax exemption pursuant to Real Property Tax Law (RPTL) 420-a, the Third Department explained the relevant criteria:

The “critical factor” in determining whether a facility used for housing the elderly qualifies for an exemption by virtue of being “charitable” is whether the facility subsidizes rent or charges less than fair market rental rates … . Consideration is given to whether the facility retains the ability to terminate a resident’s lease for nonpayment, whether residents are charged for supplemental services and the number of residents who are dependent on government benefits … . Simply providing housing for elderly low-income individuals does not constitute a charitable purpose … . Matter of The Church Aid of the Prot Episcopal Church in the Town of Saratoga Springs Inc v Town of Malta Assessor, 2015 NY Slip Op 01689, 3rd Dept 2-26-15

 

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