17.7 2. Lease Provisions Relating To The Right To Contest Real Property Taxes

• Jurisdiction: New York

2. Lease Provisions Relating to the Right to Contest Real Property Taxes

In order for a tenant to have the right to commence either an administrative review proceeding with the Board of Assessment Review for the taxing jurisdiction pursuant to RPTL § 524 or a Tax Certiorari Petition pursuant to RPTL § 704, the lease must explicitly state that the tenant has the right to bring such a proceeding. Such provision should include an obligation of the landlord to provide the tenant with all notices relating to tentative and final assessments on the property. However, tenants should be aware of the timing for posting of the tentative tax roll, Board of Assessment Review hearing dates, and the outside date for bringing a certiorari action (within 30 days following posting of the final tax roll).

It should be noted that a tenant’s ability to bring an action to contest real property taxes has been reviewed extensively by the courts. Where a nonfractional tenant (i.e., one leasing the entire property interest comprising the tax parcel in question) is bound by the lease to directly pay the entire tax assessment on behalf of the landlord, the tenant will have standing to commence a tax certiorari proceeding.³⁹⁰ This is the case even if the lease does not contain a provision expressly granting the tenant the right to commence an action contesting the assessment.³⁹¹

With respect to fractional tenants, the analysis is more involved to account for the potential conflicts in granting standing to multiple parties to contest a single assessment. In Waldbaum Inc. v. Finance Admin. of City of New York,³⁹² the Court of Appeals set the standard under which a fractional commercial tenant may bring a tax certiorari proceeding. In that case, the tenant, Waldbaum, Inc., was a fractional tenant in premises for which the landlord paid all real property taxes. Under an escalation clause, Waldbaum was obligated to pay additional rent equal to its pro rata share of the taxes in excess of a base tax amount. However, Waldbaum’s tax payments to the landlord were to reduce any additional rent paid to the landlord under a percentage rent provision. Unless the tax payments exceeded percentage rent, the net tax liability to the tenant, Waldbaum, would be zero. The court held that, in order for a fractional tenant to have standing to bring a tax certiorari proceeding, a lease must either (i) give a fractional tenant the right to assert the landlord’s “undivided” property interest in a tax certiorari proceeding, or (ii) require the tenant to directly pay the entire, undivided, tax bill.³⁹³ The court further held that, even if one of these standards is met, the tax assessment must have a direct adverse effect on the tenant’s “pecuniary interests.”³⁹⁴ Because Waldbaum was not obligated to pay the entire tax bill affecting the leased premises and had no contractual right to bring an action to contest the entire tax assessment, the court held that it lacked standing.

The court in Waldbaum further held that the provision requiring a reduction of percentage rent by the amount of taxes paid by...