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New York Court of Appeals Case Flips Over Tax Grievance Challengers
The New York Court of Appeals recently decided a case which will dramatically change the requirements for initiating review of real estate tax assessments, triggering additional concerns that property owners in New York State should consider when drafting lease agreements. In Larchmont Pancake House v. Bd. of Assessors, 32 N.Y.3d (2019), the Court ruled in favor of the municipality, finding that the beneficiary to a trust lacked proper standing to authorize the commencement of a tax certiorari action in connection with a parcel of real property that was held in the trust’s corpus.
Under state law, a party who is dissatisfied with a property value assessment may seek administrative review by filing a tax grievance with the municipal assessor or board of assessment review. State law requires that a complaint be “made by the person whose property was assessed, or by some person authorized in writing by the complainant or his officer or agent to make such a statement who has knowledge of the facts stated herein.”
This appeal arose out of four property tax certiorari proceedings challenging the annual tax assessments on real property located in the Town of Mamaroneck and operated as an “International House of Pancakes” restaurant. The property was originally owned by Frank and Susan Carfora, the proprietors of the restaurant (operated under a corporate name). The Carforas held the property jointly until Frank’s death, after which Susan became the sole owner. Susan died in 2009 and the property was transferred to a revocable trust. Pursuant to the trust, four years later the property was transferred to an LLC controlled by Carfora’s daughters, Irene and Portia. During the four years between Susan’s passing and the transfer of title to her daughters, Portia, as petitioner on behalf of the trust, authorized the grievance of the subject property tax assessments filed in the name Larchmont Pancake House. Each action was contested by the municipality based upon the Petitioner’s alleged lack of standing after four years.
Ultimately, the Court concurred with the local municipality, finding that Larchmont Pancake House lacked standing to bring these actions because, although it paid the taxes, it had no written, legal obligation to do so. Liability to pay the property taxes rested with the trust, not the Petitioner. Portia lacked standing because: (1) she had no direct legal obligation to pay the taxes; and (2) no written right to commence the proceedings. A lengthy dissent criticized the majority for the Court’s abandonment of the pleading requirements in a case, which involved a small closely held family business.
This decision will have a dramatic impact on the terms included in commercial and residential lease agreements. Property taxes are generally paid by the tenant as part of their rent payment. However, tax grievance clauses are heavily negotiated among multinational and sophisticated property owners and real estate developers who may not want to afford their tenants the ability to grieve the taxes. The Larchmont decision means that the tenant no longer has the right to bring the grievance, unless they both: (1) directly pay the property taxes; and (2) have a contractual obligation to do so. Thus, from the tenant’s point of view, it would be important to include a section in a lease agreement that expressly grants the tenant the permission to challenge the tax assessment.
David Pernick contributed to the writing of this article.