New York’s newly enacted pied-à-terre tax could leave entire co-op buildings on the hook for hefty tax bills if a wealthy second-home owner refuses to pay — sparking alarm among real estate brokers and co-op advocates who warn the measure was drafted without accounting for how co-ops actually operate.
“It’s not the shareholder that suffers the consequences, it’s the entire building that suffers the consequences,” Jason Haber, co-founder of the American Real Estate Association and a Compass broker, told The Post.
The tax spearheaded by Gov. Kathy Hochul and touted by Mayor Zohran Mamdani was signed into law as part of the state budget last month.
It targets luxury non-primary residences and is expected to raise hundreds of millions of dollars annually from wealthy second-home owners.
But experts say the mechanics of collecting the surcharge could create major headaches for co-op boards, particularly in smaller buildings.
Unlike condominiums, co-ops do not have separate tax lots for individual apartments.
Instead, the entire building is assessed as a single property, with real estate taxes paid by the co-op and passed through to shareholders via monthly maintenance charges.
“As regards to the pied-à-terre tax, the legislation requires the co-op to pay the surcharge in the same way that they pay their real estate taxes, and the co-op must then charge the impacted shareholder back and hope to collect the surcharge from them,” Rebecca Poole, director of membership and communication for the Council of New York Cooperatives and Condominiums, told The Post.
That arrangement could leave co-op boards temporarily fronting large sums of money while they attempt to recover the surcharge from absentee owners.
“It’s possible that co-ops could be out the funds while waiting for the shareholder who is subject to the surcharge to pay the charge back,” Poole said.
The problem becomes especially acute in smaller buildings, where a single large apartment could trigger a significant tax bill.
“For example, if you have a five-unit co-op and the pied-à-terre tax applies to the largest unit — which may be comprised of a couple of combined units — the other four shareholders might be forced to quickly come up with a large sum of money that they don’t have to pay, the surcharge, while they try to collect the funds from an out-of-town pied-à-terre owner,” Poole said.
Haber warned that enforcement could create even bigger problems because co-ops lack individual tax parcels.
“You cannot put a tax lien on an individual unit in a cooperative because there is no tax lot for that unit,” Haber said.
“Instead, what do you do? You put a lien on the entire building.”
That means a dispute involving a single shareholder could potentially affect every resident in the building, according to Haber.
“If someone’s trying to sell their apartment and the buyer is getting financing, that buyer may not be able to get financing because of the tax lien,” he said.
“It creates a cloud on the building.”
Haber argued that lawmakers failed to fully consider the unique structure of co-op ownership when drafting the legislation.
“There’s only one tax lot for the entire building, so how do you assess a tax on an individual shareholder? This is the problem,” he said.
Poole said many boards are still trying to determine whether the tax will apply to their buildings and which shareholders could be affected.
“The two problems we potentially see happening are lack of clarity among co-ops in general as to whether or not this will apply to them, because in the press it’s been about the $5 million figure and the market value doesn’t line up with that exactly,” she said.
She added that boards should begin preparing now.
“The first step we’re encouraging is for co-op and condo boards to look and see if this will apply to any of their apartments and then start to prepare,” Poole said.
Some boards are already discussing whether to restrict future pied-à-terre ownership altogether in order to avoid potential liability, according to Haber.
“The whole building is impacted if one shareholder doesn’t pay the tax,” he said.
Gov. Kathy Hochul’s office told The Post that “the city will identify who is covered by the law, communicate that to the boards, who are then required to pass that information on to the owner.”
“The boards don’t have to tally their own bill and aren’t penalized for anything to do with reporting info,” Hochul’s office told The Post.
“Co-ops are already responsible for collecting property taxes, so it makes sense that they would also collect a surcharge.”
The governor’s office also said that the new law “includes tools for the city to directly enforce against the unit owner, in addition to the co-op’s own right to collect from the shareholder.”
“In a co-op setting the building’s property taxes already are determined at the building level and then apportioned based on stockholders’ ownership shares,” the governor’s office told The Post.
“That is sensible in the context of a coop, where a unit owner actually has a percentage of shares in the corporation that owns the underlying property.”
When asked about co-ops possibly moving to ban pied-à-terre arrangements to avoid liability, the governor’s office said: “This tax applies to a narrow class of high value, secondary residence that by definition are not primary residences for New Yorkers.”
“Nothing in this policy would diminish housing options made available to New Yorkers.”
The Post has sought comment from Mamdani.
