Property Tax Implications of Good Cause Eviction

The enactment of New York State’s Good Cause Eviction Law (GCE) on April 20, 2024, marked a significant shift in the landscape of landlord-tenant relations. While much attention has been given to how this law strengthens tenant protections, less has been said about its implications for property taxes in New York City. This article explores how GCE may influence property tax assessments and what landlords need to consider moving forward.

Overview of the Good Cause Eviction Law

Before diving into the property tax implications, it’s crucial to understand the key components of GCE:

1. Limiting Unreasonable Rent Increases: GCE caps annual rent increases for unregulated units. Any increase above 5% plus the change in the Consumer Price Index (CPI), or 10%, whichever is lower, is presumed unreasonable.
2. Ensuring Lease Renewals: Landlords must offer renewal leases to existing tenants unless there’s a “good cause” for eviction.
3. Defining Good Cause for Eviction: The law outlines specific grounds that constitute good cause, such as non-payment of rent, breach of substantial lease obligations, or the landlord’s intention to use the property personally.

Property Tax Implications

While GCE doesn’t directly alter property tax laws, its provisions can indirectly affect property tax assessments and liabilities for landlords in several ways.

1. Impact on Rental Income and Property Valuations

Property taxes in New York City are calculated based on the assessed value of a property, which is influenced by its potential rental income:

• Stabilized Rental Income: With GCE limiting rent increases, landlords may experience slower growth in rental income. This stabilization could lead to lower projected income streams used in property valuations.
• Assessment Adjustments: The Department of Finance may adjust property assessments to reflect these stabilized income projections, potentially resulting in lower property tax liabilities.

2. Consideration of Property Tax Expenses in Rent Increases

GCE explicitly allows courts to consider landlords’ property tax expenses when evaluating whether a rent increase above the statutory limit is reasonable:

“The court shall consider the landlord’s property tax expenses and any recent increases thereto…” (RPL §216)

• Justifying Higher Rent Increases: If a landlord faces significant property tax hikes, this can be a factor in court to justify rent increases above the standard cap.
• Documentation is Key: Landlords must maintain thorough records of their property tax bills and any recent increases to present a compelling case.

3. Incentives for Property Improvements

GCE permits landlords to implement reasonable rent increases to reflect significant repairs or improvements:

• Qualifying Improvements: Structural, electrical, plumbing, or mechanical system upgrades that require a government permit, or abatement of hazardous materials, can justify higher rent increases.
• Impact on Property Value: Such improvements may increase the property’s assessed value, potentially leading to higher property taxes.
• Balancing Act: Landlords must weigh the benefits of increased rental income against the potential rise in property taxes due to higher property valuations.

Strategies for Landlords

Given these implications, landlords should consider the following strategies:

1. Monitor Property Tax Assessments Closely

• Review Annual Notices: Keep a close eye on property tax assessment notices from the Department of Finance.
• Challenge Inaccuracies: If the assessed value doesn’t accurately reflect the property’s income potential under GCE, consider filing a challenge.

2. Document All Expenses

• Property Tax Increases: Maintain detailed records of all property tax bills and any increases.
• Improvement Costs: Keep receipts and permits for all qualifying repairs and improvements.
• Legal and Compliance Costs: Document expenses related to compliance with GCE, as these may support arguments for reasonable rent increases.

3. Legal Preparedness

• Stay Informed: Keep up-to-date with any legal challenges or changes to GCE that could affect property tax implications.
• Consult Professionals: Work with legal and tax professionals to navigate the complexities of GCE and property tax laws.

Looking Ahead: Potential Legal Challenges

As highlighted in recent discussions among legal experts and tenant advocates, GCE is expected to face litigation that may further define its reach:

• Discovery Processes: Tenants may request discovery to determine if their residence qualifies under GCE, potentially prolonging eviction proceedings.
• Court Interpretations: How courts interpret the consideration of property tax expenses in rent increase cases will set precedents affecting future assessments and landlord strategies.

Conclusion

The Good Cause Eviction Law introduces new dynamics to New York City’s rental market that extend beyond tenant protections. For landlords, understanding the interplay between GCE and property taxes is essential for financial planning and legal compliance. By staying informed and proactively managing their properties and financial records, landlords can navigate these changes effectively.

Read our law firm’s GCE coverage here:

• Good Cause Eviction (GCE) Notice | Rosenberg & Estis, P.C. (rosenbergestis.com)
• Good Cause Eviction Update Based on DHCR Guidance | Rosenberg & Estis, P.C. (rosenbergestis.com)
• Updated 4/22/24: Summary of the 2024 Housing Laws | Rosenberg & Estis, P.C. (rosenbergestis.com)
• Understanding Good Cause Eviction: The Basics | New York Law Journal

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Landlords should consult with professional advisors to understand how the Good Cause Eviction Law specifically affects their situation.