For owners of commercial properties, most operating expenses are fixed regardless of their financial circumstances; the exception is property taxes. Property owners in difficult financial circumstances can often successfully reduce their property taxes to cut expenses.
The past year has been financially challenging for nearly all people, but owners of commercial real estate in particular have faced devastating disruptions to their operations and livelihoods. Many have seen their buildings substantially or completely vacated by tenants unable to pay, and have been unable to replace those tenants with rent-paying tenants. The need for businesses to adapt to the pandemic, either with reduced work forces or employees working remotely, will inevitably lead to decreasing demand for office space, and possible sustained levels of vacancy. Local real estate professionals fear that the pandemic will create an increase in available office space downtown and in the suburbs (see article). Commercial owners powerless to remove non-paying tenants who stay in their properties have been denied relief under the various pandemic aid packages, rendering those properties effectively, if not actually, vacant. Meanwhile, property expenses accrue for owners lacking the income to pay. Of those expenses, the greatest (aside from mortgage payments) is usually property taxes.
Property tax bills are based upon assessed value, which in turn is based upon the market value of the property. For income-producing properties, market value is determined in large part by the net income produced. Therefore, a drastic decline in net income produces an often dramatic decline in the market value of a property.
New York State law requires assessors to value properties each year as of a certain date. In New York State towns, assessed values will be determined May 1, 2021, (for 2021-2022 tax bills) based upon market values as of July 1, 2020. Level of occupancy as of March 1, 2021 is also part of the formula. The law recognizes substantial revenue loss or vacancy as of those dates, even if temporary, as a basis to request a reduced assessment for a property, on a temporary basis.
Significant income loss or vacancy need not be pandemic-related to entitle an owner to tax relief. The events of the past year merely provide a stark example of circumstances which would spur an owner to seek relief. A reduced tax bill should be a goal for any owner affected by drastic revenue loss or vacancy, for any reason.
Call us to discuss a possible reduction of your property tax bill with an attorney today (716)-262-9694.