Proposed Rules Governing Tax Exemption under section 421-a of the Real Property Tax Law
Proposed Rules: Closed to Comments
Statement of Basis and Purpose of Proposed Rule
Real Property Tax Law §421-a provides a real property tax exemption for new multiple dwellings. HPD determines eligibility for §421-a real property tax exemptions. HPD is proposing amendments to Chapter 6 of Title 28 of the Rules of the City of New York (the "421-a Rules") in order to implement recent amendments to the New York City Zoning Resolution and State law. The proposed amendments also reflect programmatic changes in the requirements for the marketing of affordable units constructed to qualify or extend tax exemption benefits for a new multiple dwelling.
Tax Exemption for Accessory Parking
Real Property Tax Law §421-a limits the exemption available for nonresidential space in new multiple dwellings to 12% of the aggregate floor area of commercial, community facility and accessory use space ("12% Cap"). If the nonresidential space exceeds the 12% Cap, the §421-a tax exemption is reduced accordingly. Accessory parking used by residents that is located up to 23 feet above the curb level does not count toward the 12% Cap and is therefore fully exempt from taxation under §421-a. The City Planning Commission has amended Zoning Resolution § 13-21 to expand the use of accessory off-street parking spaces in the Manhattan Core from residents to the public at large. The proposed rule amendments would amend the definition of "Floor area of commercial, community facilities and accessory use space" to reflect this Zoning Resolution amendment and thereby exclude from the 12% Cap accessory off-street parking spaces in the Manhattan Core that will also be available to the public. Such parking will therefore be eligible for the full §421-a real property tax exemption.
Extending Deadline for Exemption from Affordability and AV Cap
Under §421-a, a Preliminary Certificate of Eligibility entitles a project to a full real property tax exemption for up to three years of construction, and a Final Certificate of Eligibility entitles a project to between 10-25 years of post-completion exemption benefits that are phased out over the benefit period. Preliminary Certificate of Eligibility applications must be filed after the commencement of construction but prior to completion.
· The Geographic Exclusion Area is a residential zone in the City where both the State legislature and the City Council have determined that there is no need for a tax break to incentivize the construction of housing. In the Geographic Exclusion Area, §421-a benefits are not as-of-right and projects must meet certain affordability requirements in order to receive the §421-a tax exemption ("Affordability Requirements"). If projects in the Geographic Exclusion Area provide affordable units offsite instead of onsite, they may still only receive §421-a benefits for a portion of an apartment’s billable exempt assessed value ("AV Cap) depending upon when the project commenced and completed construction and the date of the written agreement for the construction of offsite affordable units. If the AV Cap applies, the value of the unit above this threshold is fully taxable. The AV Cap applies outside the Geographic Exclusion Area as well to any project that does not receive extended §421-a benefits.
· Chapter 4 of the Laws of 2013 extended the deadline for filing Preliminary Certificate of Eligibility applications from May 14, 2012, to June 24, 2012, for projects that are seeking exemption from the Affordability Requirements and/or the AV Cap. These projects will not be required to meet the Affordability Requirements and/or the AV Cap if they complete construction within 72 months or are entitled to an extension of the 72-month period due to such factors as extraordinary size and complexity, strikes or labor stoppages, industry-wide shortages of construction materials, substantial damage or mortgage foreclosure proceedings.
· Projects that are the subject of mortgage foreclosure or other lien enforcement proceedings on or before June 24, 2012, in the Geographic Exclusion Area also will be entitled to these completion parameters in accordance with Chapter 4 of 2013; if met, they, too will not have to meet the Affordability Requirements and/or the AV Cap. The proposed rule amendments reflect this month-long filing extension.
Elimination of FAR 15 Prohibition for Certain Projects
The City Council enacted a prohibition against granting §421-a benefits in the highest density midtown and downtown zoning districts in 1984 ("FAR 15 Prohibition") in order to guard Manhattan’s remaining manufacturing areas against residential encroachment. In 1993, with the continuing decline in manufacturing in Manhattan, the City Council lifted the FAR 15 Prohibition. The City Council continued to exempt projects from the FAR 15 Prohibition until December 31, 2007. Chapter 4 of the Laws of 2013 lifts the FAR 15 Prohibition for specified projects that meet certain conditions specified in the law. The proposed rule amendment reflects these additional exceptions to the FAR 15 Prohibition.
Marketing of Affordable Units
- The proposed rule amendments provide that HPD or another governmental entity must market the affordable units in projects seeking extended 421-a benefits outside of the Geographic Exclusion Area.
- Inside the Geographic Exclusion Area, the proposed rule amendments provide that HPD also will market those affordable units that are constructed without any governmental assistance.
- The proposed rule amendments clarify the requirements for owners ‘affidavits submitted with the Final Certificate of Eligibility application for projects within the Geographic Exclusion Area. Even projects marketed by HPD must provide this affidavit.
- Where affordable units are constructed with governmental assistance from sources other than HPD, the proposed rule amendments provide that owners are obligated to notify such governmental entities of the requirement that residents of the community board be granted priority for the purchase or rental of 50% of the affordable units, unless preempted by federal requirements.
- All such affidavits must also provide that the community preference requirement will be met upon initial occupancy or that it is preempted by federal requirements specified in the affidavits themselves.