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Volume 7 - Opinions of Counsel SBEA No. 85

Opinions of Counsel index

Homestead Class (cooperatives and condominiums) - Real Property Tax Law, §§ 581, 1901:

A building or structure, used primarily for residential purposes, which houses one, two or three families is a member of the homestead class for purposes of Article 19, regardless of its form of ownership.

With the enactment of Chapter 1057 of the Laws of 1981, New York State now provides for differential real property tax liability according to property type or class. In the case of “special assessing units”, defined as any assessing unit with a population of 1,000,000 or more (RPTL, § 1801 (a)), all real property is divided into four classes (RPTL, § 1802(1)), with tax levies to be apportioned among those classes based upon class tax shares in 1981 (RPTL, § 1803(1)). All other assessing units may elect to establish two classes of real property once they have been certified by the State Board as “approved assessing units” (RPTL, § 1903(1)). Tax distribution in approved assessing units which choose this option will be based upon class tax shares immediately preceding revaluations (RPTL, §§ 1903(2), 1901(l),(b)).

Although the apparent intent of the Legislature was to minimize the possibility of inter-class tax shifts particularly to the residential class, not all residential property is treated alike under Articles 18 and 19. Furthermore, as between Articles 18 and 19, there are distinctions as to the classification of similar residential properties.

Under Article 18, residential real property is in either “class one” or “class two”. Article 18 distinguishes between “all one, two and three family residential real property . . .” (included in “class one”, as defined in § 1802(1)) and “all other residential real property which is not designated as class one” (defined as “class two” by § 1802(1)). Residential condominiums and cooperatives are placed in class two, since the definition of “class one” specifically excludes one, two and three family residential dwellings “held in cooperative and condominium forms of ownership.”

In contrast, Article 19 makes no mention of condominiums and cooperatives. Rather, the “homestead class” is simply defined in section 1901(e) of Article 19 as:

all one, two or three family dwelling residential real property, including such dwellings used in part for nonresidential purposes but which are used primarily for residential purposes, and farm dwellings. Notwithstanding the provisions of paragraph (g) of subdivision twelve of section one hundred two of this chapter, a mobile home or a trailer shall not constitute a homestead for purposes of this article unless it is owner-occupied and separately assessed.

Membership in the homestead class, as is true of “class one”, is thus premised upon two requirements: (1) the use of the real property must be solely or primarily residential (see, 9 NYCRR 190-4.1(j)); and (2) the property must be a “dwelling” for one, two or three families. However, unlike the Article 18 definition of “class one” which, as mentioned, specifically excludes condominiums and cooperatives from that class, Article 19 makes no reference to form of ownership in defining the “homestead class” of properties. As a result, we have received inquiries from several assessing units concerning the eligibility of condominiums and cooperatives for membership in the homestead class. In requesting clarification and direction for purposes of classification (RPTL, §§ 1901(e), 1903(7)), a number of possible resolutions of the issue have been offered, including:

a. All residential condominiums and cooperatives qualify;

b. No residential condominiums or cooperatives qualify;

c. Each separately assessed condominium unit housing three families or less qualifies, but in the case of property held in cooperative form of ownership, only a structure housing three families or less would qualify;

d. The physical structure, rather than form of ownership, is determinative and, therefore, only a structure housing three families or less qualifies (whether or not the structure includes separately assessed units, as would be the case in condominiums).

We conclude that the first of these approaches is inappropriate because it would have the effect of rendering meaningless - as applied only to properties owned in the form of condominiums and cooperatives - the three family limitation set forth in the definition. We believe the second possibility should not be considered because had the Legislature intended such a result (i.e., to exclude all condominiums and cooperatives) it would have undoubtedly used the same exclusionary language set forth in the definition of “class one” in Article 18. We find the third proposed solution unwarranted because it is premised upon a distinction grounded solely in form of ownership - a distinction neither expressed nor implied in Article 19. Thus, based upon the analysis which follows, it is our best judgment that the last of these possible solutions is the one most in keeping with the spirit of Chapter 1057.

Based upon the otherwise virtual identity of the definitions of “class one” (§ 1802(1)) and “homestead class” (§ 1901(e)), we assume that the lack of an exclusion in Article 19 similar to that set forth in Article 18 means that the unique form of ownership of condominiums and cooperatives does not bar all such properties from homestead class membership. However, the plain language of section 1901(e) makes clear that the special benefits of the homestead tax rate are not available to all residential real property. (For example, multiple dwellings of four units or more and commercial properties with incidental residential uses are clearly excluded).

In formulating the most appropriate interpretation of this law, it is important to iterate that the terms “condominium” and “cooperative” refer to form of ownership rather than to the type of structure or the use of real property. A condominium has been described as “a form of fee ownership of living space within a building, together with a proportionate undivided interest in the common areas or elements of the land and buildings” (Rothman v. Pelcher, 89 Misc.2d 560, 392 N.Y.S.2d 536, at 537 (S.Ct., Nassau Co., 1977), rev’d on other grounds and rem., 58 A.D.2d 812, 396 N.Y.S.2d 267 (2d Dept., 1977), aff’d on rem., 49 N.Y.2d 954, 406 N.E.2d 802, 428 N.Y.S.2d 947 (1980)). In contrast, a cooperative is one in which “the co-operative corporation owns the land and the building. Shares in the corporation are sold to each ‘owner’, who in turn receives a stock certificate, not a deed to real property. The shares entitle the shareholder to a long-term ‘proprietary’ lease” (State Tax Commission v. Shor, 43 N.Y.2d 151, at 156, 371 N.E.2d 523, 400 N.Y.S.2d 805, at 807 (1977)).

Condominium projects in New York are governed by the Condominium Act, Article 9-B of the Real Property Law, applicable to all projects for which a declaration submitting the project to the Article is executed and recorded (Real Property Law, § 339-f(l)). Subdivision 13 of section 339-e of the Real Property Law defines a condominium “unit” as “a part of the property intended for any type of use or uses, and with an exit to a public street or highway or to a common element or elements leading to a public street or highway, and may include such appurtenances as garage and other parking space, storage room, balcony, terrace and patio.” Each unit and its common interest is “deemed to be a parcel and . . . subject to separate assessment and taxation” (Real Property Law, § 339-y(l)).

There is no New York statute governing cooperative ownership equivalent to the Condominium Act. Cooperative ownership involves “a partnership for the mutual benefit of co-operative owners expressed in corporate terms” (Tompkins v. Hale, 172 Misc. 1071, 15 N.Y.S.2d 854, at 857 (S.Ct., New York Co., 1939), aff’d, 259 App.Div. 860, 20 N.Y.S.2d 398 (1st Dept., 1940), aff’d, 284 N.Y. 671, 30 N.E.2d 721 (1940)). The cooperative form of ownership may be used to hold title to real property used for any purpose, including residential. However, share ownership in a cooperative is not the legal equivalent of ownership in fee simple of a family home:

A cooperative apartment is not a one-family house or a two-family house. . . . A person purchasing stock in a cooperative is not buying a house. He is buying shares in a corporation and contractual rights to occupancy of an apartment in a building owned by the corporation (Danforth v. McGoldrick, 201 Misc. 480, 109 N.Y.S.2d 387, at 389 (S.Ct., New York Co., 1951).

Whether a particular structure is “residential real property” and whether the structure is a “one, two or three family dwelling” are factual determinations to be made by the assessor. They should not be resolved based upon the form of ownership. There certainly can be and are condominiums with three or less residential units, just as there can be and are condominiums with four or more residential units. The same is true of cooperatives. And as with property type, these are factual determinations which must be made by the assessor. {*}

Several 1981 legislative enactments suggest that condominiums and cooperatives are to be treated alike for purposes of real property assessment and taxation. This is evidenced by the exclusion of condominiums and cooperatives from “class one” of Article 18 (RPTL, § 1802(1)); the comparable limitations imposed upon the methods of assessing condominiums and cooperatives (RPTL, § 581; see, 7 Op.Counsel SBEA No. 81); and their similar treatment under the small claims assessment review law. {**}

In defining the “homestead class” for purposes of Article 19, the Legislature did not refer to a “parcel”, “unit” or similar term, which would have led to the conclusion that each separately assessed parcel or unit (e.g., each residential condominium) might qualify as a “homestead”. The homestead class includes “all one, two or three family dwelling residential real property including such dwellings used in part for nonresidential purposes, but which are used primarily for residential purposes, and farm dwellings” (§ 1901(e), emphasis added). Although “dwelling” is not defined in Article 19, it is defined in other statutes to mean a “building, structure or portion thereof” used for residential purposes (see, e.g., Multiple Dwelling Law, § 4(4); see also, Public Health Law, § 1370(1); Penal Law, § 140.00(3)). In no statute does the definition connote distinctions based on forms of ownership. Therefore, we believe the use of the word “dwelling” in Article 19 refers to the “structure”, rather than to the form of ownership or the method of assessing property on the assessment roll.

Accordingly, it is our opinion that membership in the homestead class is contingent upon the property being improved by a building or structure used primarily for residential purposes and housing no more than three families.

October 6, 1982

NOTE: Chapter 800 of the Laws of 1983, effective April 30, 1983, redefined the “homestead class” in section 1901(e) to include “all other residential real property consisting of more than three dwelling units held in condominium form of ownership”, subject to the right of approved assessing units which adopted the homestead base proportion prior to April 30, 1983, to exclude these additional properties from that class.

{*}  We are aware that in some multi-use structures, the entire residential portion, which may consist of many more than three apartments, is a single condominium unit. Such a unit obviously could not be in the homestead class since it is a dwelling for more than three families.

{**}  While condominiums are specifically excluded from the category of real property eligible for small claims assessment review (see, § 730(l)(b)), cooperatives are excluded by implication since the property must be “owner-occupied” (id.). Occupants of residential cooperatives own shares in the cooperative corporations; they do not own the real property which they occupy (see, Danforlh v. McGoldrick, supra).