The Real Estate Board of New York to The New York City Department of Finance re: Proposed Rule Relating to Surcharge on Certain Non-Primary Residences

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The Real Estate Board of New York (REBNY) is the City's leading real estate trade association representing commercial, residential, and institutional property owners, builders, managers, investors, brokers, salespeople, and other organizations and individuals active in New York City real estate. REBNY appreciates the opportunity to comment on the Department of Finance's proposed rule to implement a surcharge on certain non-primary residences.

Notwithstanding our serious concerns about the underlying policy, REBNY appreciates the Department's efforts to promptly create an administrative framework for implementation and enforcement. The proposed rule provides important guidance regarding the determination process, appeals, audits, and enforcement.

However, several provisions would benefit from clarification or modification to ensure that the surcharge is fairly administered, provides appropriate due process to owners, and does not inadvertently impact primary resident New Yorkers who are not its intended targets.

PROVISIONS IN THE RULE THAT WOULD BENEFIT FROM ADDITIONAL CLARIFICATION

Notice Procedures Require Additional Clarification
The proposed rule establishes a process by which the Department issues an initial determination that a property is subject to the surcharge. For Fiscal Year 2026-2027, those determinations must be issued by August 30, 2026, and in future years by January 30. However, the rule does not explain how notices are to be transmitted, who receives them, or how notice procedures operate in common ownership situations. These questions are particularly important because an owner's ability to challenge the determination depends on receiving timely and accurate notice. The final rule should clarify the following:

Where Will Notices Be Sent: The Department must clarify where notices will be sent when it does not possess an owner's email address. Specifically:

• Will notices be mailed and/or emailed directly to each condominium unit owner determined not to qualify for the exemption?

• Will notices be sent to the apartment itself or to another mailing address on file?

• If a condominium owner receives tax bills at a different address, which address will the
  determination be sent to?

• How will notices be handled where tax bills are directed to a mortgage lender or other third party?

• For housing cooperatives, will notices be sent to the cooperative corporation, the shareholder, the managing agent, or some combination thereof?

• Will cooperative boards and managing agents receive copies of the determinations or a summary identifying affected units?

These questions are critical because owners, boards, and managing agents all will play a significant role in communicating determinations, assisting owners, and administering billing obligations.

How Will Notices Be Sent: The Department must also clarify the method of delivery. If notices are transmitted solely through regular mail, there may be no proof of delivery. Given that the notice triggers a short appeal period and may ultimately result in substantial tax liability and penalties, owners (and the Department) should have confidence that they received the notice. The final rule must clarify whether notices will be transmitted electronically, by mail, or both, when a notice will be deemed received, and whether any delivery confirmation procedures will be used.

What Information Will Notices Include: The final rule must specify the contents of the Department's initial determination. At a minimum, these initial determination notices should:

• Explain the basis for the Department's determination, including the market value of the property, how the value was determined, the reason the Department believes it is a non-primary residence, and in the case of a cooperative shareholder the Department's understanding of share ownership;

• Identify the information relied upon by the Department to make such a determination;

• Explain available exemptions;

• Describe appeal rights and procedures;

• Identify documentation that taxpayers may submit in support of an appeal; and

• Include the projected surcharge amount that will be imposed if the determination is not overturned.

Proof of Primary Residence Must Be Expanded and Clarified
Section 62-06(b)(2)(i) permits proof of primary residence through a tax return listing the property as a permanent home address, a DMV-issued identification card, a Board of Elections voter identification card, or "other proof of primary residency determined to be acceptable by the department." As such, under the proposed rule, an owner seeking to establish primary residence on appeal may do so only through (A) a permanent-home address on a state or federal income tax return, or (B) two or more enumerated identity
documents (§ 62-06(b)(2)(i)).

However, Administrative Code § 11-3203(a)(1) identifies occupancy - whether the unit "was occupied in aggregate for a majority of days during a calendar year by a covered owner" - as a central factor in determining primary residence. Direct evidence of occupancy appears in the rule only as a factor the Department "may" consider on its own initiative when the automatic pathway is not met (§ 62-06(a)(3)(i)); it is not among the forms of proof an owner may affirmatively submit.

This is not consistent with the statute. A genuine primary resident who occupies the unit for the majority of the year - but whose most recent tax return reflects a different mailing address, who has recently moved in, who files jointly under a spouse's address, has moved from a foreign country, or who is not required to file at all - is left, under the enumerated list, only with the residual "other proof ... acceptable to the department" catch-all, which is governed by no standard. The final rule should expressly permit an owner to establish primary residence through direct occupancy evidence - including the majority-of-days measure the statute itself names, together with utility usage records and comparable documentation - rather than confining the owner's affirmative case to a tax-return address and identity documents.

To address this issue, the final rule must identify additional documents or certifications that constitute acceptable proof of primary residence. These should include, at minimum:

• An affidavit executed by the owner (or her attorney) attesting to primary residence status;

• A bank statement or insurance policy showing the accountholder or policyholder's unit address as the account address;

• For a foreign-purchaser, a letter from a foreign tax authority or professional confirming primary tax residence;

• An affidavit from a student or a letter from an educational institution confirming the student's enrollment and local residency; and

• A letter from an employer attesting to the employee's primary residence status.

Affidavits are routinely accepted in real property tax proceedings and other administrative contexts. Likewise, students, retirees, and other individuals may not possess all forms of documentation specified in the proposed rule. Expanding and clarifying acceptable documentation would improve compliance, reduce unnecessary disputes, and ensure consistency with the statute.

The Rule Must Recognize Ultimate Beneficial Ownership in Entity Structures
The proposed rule does not adequately address common entity ownership structures. Among others, common examples entity ownership structures not contemplated in the proposed rule include:

• A property held by an LLC owned by another LLC;

• An LLC owned equally by two individuals;

• A property owned by multiple LLCs;

• A trust that owns an LLC that owns property;

Without further clarification, a person who genuinely occupies a property as a primary residence may be unable to establish covered-owner status simply because the property is held through common and legitimate ownership structures like the above. Section 62-02 of the proposed rule expressly forecloses multi-tier look-through by requiring that the title-holding entity hold "an undivided fee interest" in the property. For these types of circumstances, the Department should revise Section 62-02 to adopt a look-through approach that traces beneficial ownership through each layer of ownership to the ultimate natural person who exercises control over the property. That individual should be treated as the relevant control person for purposes of determining eligibility for the primary residence exemption. Such an approach is consistent with concepts already utilized elsewhere in New York tax law and in federal tax law, and reflects the fact that layered ownership structures are typically established for legitimate estate-planning, asset-protection, and privacy purposes that predate the surcharge and have no relationship to its avoidance. The Department should also clarify how the "majority interest" requirement is measured, given that many operating agreements and partnership agreements
allocate voting, economic, and profits interests independently.

The Treatment of Trusts Is Unduly Restrictive
Section 62-06(b)(2)(v) requires proof that an individual is the sole beneficiary of a trust. However, most trusts utilized for legitimate estate-planning purposes have multiple beneficiaries, often including spouses and children. The policy rationale underlying the surcharge is to tax underutilized properties that do not serve as anyone's primary residence. That rationale is not implicated where a trust beneficiary occupies the property as a primary residence. As such, the surcharge should not apply where any beneficiary of the trust uses the property as a primary residence. Similarly, given that many trusts provide for contingent or residual beneficiaries, the final regulations should provide that contingent beneficiaries of a trust are disregarded in determining whether a person is a covered owner of property held in trust.

Separately, the proof provision in the proposed rule does not match the statutory text. Administrative Code § 11-3201 recognizes covered-owner status where the beneficial "owner or owners are the sole beneficiaries" of the trust - language that, by its plural terms, contemplates that multiple individuals may together constitute a trust's entire beneficiary class (for example, two spouses who are the trust's only beneficiaries and who occupy the unit as their primary residence). The proposed rule § 62-06(b)(2)(v), however, provides a proof pathway only for "the sole beneficiary" of a trust, in the singular, and requires a trust agreement and trustee affidavit each identifying a single beneficiary. As drafted, the rule provides no mechanism by which co-beneficiaries who together are a trust's sole beneficiaries - a structure the statute plainly covers - can establish their eligibility. Read strictly, the current sole beneficiary requirement would disqualify nearly every revocable living trust, because remainder beneficiaries are almost always named for what happens after the grantor's death. The final rule should conform § 62-06(b)(2)(v) to the statutory text by accommodating one or more beneficiaries who together constitute the entire beneficiary class of the trust.

The Definition of Arm's Length Transaction is Too Subjective
The proposed rule defines the term "arm's length transaction," which is relevant in the context of demonstrating that a unit is a primary residence by virtue of a lease or sub-lease to a primary resident tenant. However, the definition includes vague language that provides the Department with unfettered discretion to determine that a lease or sub-lease was entered for the purposes of avoiding the surcharge. This creates significant uncertainty as the Department could, for example, disagree with the fair market rent agreed between the owner and tenant in good faith. The final rule should, at minimum, establish a safe harbor that deems rents within 20% of the median market rent for comparable units in the same neighborhood to be "fair market."

Additionally, the definition's reference to leases entered into "for the purpose of avoiding imposition of the surcharge" is unbounded and permits the Department to disregard leases that serve legitimate commercial purposes but where surcharge planning was one of several considerations. The final rule should clarify that a lease satisfies the arms-length requirement where the lease has a legitimate commercial purpose independent of the surcharge, even if surcharge implications were considered in the decision to enter into
the lease. Only where surcharge avoidance is the sole or primary purpose of the lease, or where the lease lacks legitimate commercial purpose, should the arms-length requirement fail.

APPEALS PROCESS

The Appeal Period Must Be Extended
Section 62-06(b)(1) provides owners with 30 days to appeal an initial determination that a property is not a primary residence subject to the surcharge. The 30-day appeal period is unreasonably short to provide meaningful due process, particularly given the uncertainty surrounding notice procedures and the significant consequences that result if an appeal is not filed in a timely manner. The final rule should provide significantly more time for taxpayers to appeal.

Additional time is warranted given that it is highly likely that many owners will not receive notification from the Department directly. Among others, this includes circumstances in which:

• Notices may first be received by a lender, managing agent, board, trustee, or other intermediary such as the managing agent before reaching the ultimate owner;

• The Department's records may not have been updated to reflect a change in ownership or the managing agent;

• Condominium owners who may maintain alternative mailing addresses; and

• International and seasonal residents who may not promptly receive mailed notices, particularly in the summer months.

In addition, owners will likely require substantial time to assemble supporting documentation. This is particularly critical this year given that the surcharge applies retroactively to January 5, 2026, which preceded the law's enactment. This year in particular, owners could not have contemplated needing documentation to demonstrate their residence status as of January 5, 2026 because as of that date, this surcharge was not even proposed.

The 30-day window creates particularly acute challenges for cooperatives. In cooperative buildings, the managing agent or board appears likely to receive the initial determination and will then be required to notify shareholders. Those shareholders will then need time to assemble documentation and determine whether to seek review. Executing this work rapidly may not be possible in all circumstances and even in the best circumstances; a significant portion of a 30-day appeal period may be consumed simply by transmitting notice to the affected owner.

Notably, a longer appeal period would not meaningfully interfere with the Department's ability to administer the surcharge, and taxpayers would remain subject to the surcharge if their appeal is unsuccessful. Accordingly, REBNY recommends extending the appeal period to a minimum of 90 days, and preferably 180 days, to ensure that owners have a meaningful opportunity to receive notice, gather documentation, seek professional advice, and exercise their appeal rights.

The Rule Must Clarify Who May Contest a Determination and the Role of Managing Agents
The proposed rule does not clearly identify who is authorized to submit documentation, challenge a determination, or appeal on behalf of the owner. For properties owned through entities, trusts, or estates, authorized representatives routinely act on behalf of beneficial owners. The final rule should clearly identify:

• Who may submit exemption documentation;

• Who may request administrative review;

• Who may file an appeal;

• Whether attorneys, accountants, trustees, executors, or other representatives may act on behalf of owners; and

• What evidence of authority is required.

Managing agents are engaged by the boards of the cooperatives and condominiums who are their clients, and the boards may have adverse interests to the owners of the individual units. However, there is a fundamental difference between condominiums and cooperatives in the imposition of this surcharge and the role of the managing agent. In condominiums, the surcharge is imposed on the tax bill for each unit owner and paid directly by that unit owner. Thus, there is no role for the managing agent. In cooperatives, the surcharge will be imposed on the tax bill of the cooperative, and the managing agent will be obligated to
bill the shareholders of the units subject to the surcharge. Thus, they will be involved, and clearer guidance as to their role in the process will promote a more efficient administration of the surcharge.

Additional clarity is important to address potential liability facing managing agents. The final rule should include a provision making clear that managing agents who assist in the surcharge administration process in good faith are not personally liable for errors, miscalculations, or collection failures attributable to shareholder, board, or owner conduct, inaccurate data, or deficiencies in the proprietary lease. The absence of such a provision exposes managing agents to liability for a tax collection function that the statute imposed on the cooperative corporation without providing the legal tools necessary to perform it.

Address Challenges Unique to Cooperatives
Unlike condominiums, the surcharge, penalties, and interest are attached as a lien on the entire cooperative property not on the individual shareholder's shares. As such, if one pied-à-terre shareholder refuses to pay, the cooperative board faces an unavoidable binary choice: advance building reserve funds - forcing all innocent shareholders to subsidize one owner's tax liability or allow the lien to compound with interest against the building's tax account. A sufficiently large or aged lien could trigger a default under the building's
blanket mortgage, jeopardize every shareholder's ability to close a sale or refinancing, and potentially expose the cooperative to tax lien sale proceedings. The proposed rule provides no mechanism to protect innocent shareholders from this exposure, no indemnification for the cooperative corporation that advances funds, and no grace period before enforcement begins.

To better support cooperatives, the final rule must establish a specific procedure for correcting imputed cooperative unit values in fiscal year 2027 and 2028 if the underlying share allocation data used by the Department is not accurate. The January 5 taxable status date and the novel share-imputation methodology make year-one valuation errors likely, and owners must not be permanently bound by a miscalculated imputed value with no correction pathway. In addition, as referenced above, the final rule should require the Department to disclose the two inputs behind each imputed unit value - the unit's share allocation and the corporation-level market value - so owners can verify the imputation should they appeal.

In addition, most cooperative proprietary leases predate the imposition of this surcharge and do not explicitly authorize the board to bill the surcharge as additional rent, impose interest or late fees on unpaid surcharge amounts, require surcharge escrow as a condition of transfer approval, or treat non-payment as a lease default. As such, boards may not have the authority to compel shareholder payment independent of whatever the proprietary lease happens to say, and litigation against a non-paying shareholder is expensive, slow, and uncertain. The final rule should expressly provide that the cooperative corporation has an independent right to recover the surcharge and all associated costs directly from the affected tenant-shareholder, and that the corporation may condition transfer consent on satisfaction or escrow of any outstanding surcharge obligation.

Similarly, the Department must clarify how it will determine the phase-two market value for cooperative units. Because cooperative apartments are not separately assessed and do not convey as real property, a comparable-sales method necessarily operates at the building level or relies on share structure to compare across units. The final rule should make explicit whether the Department will determine the market value for the cooperative corporation and allocate to units by shares, or proceed unit-by-unit, and in either case how shares enter the calculation.

ADDITIONAL GUIDANCE

Liability when Ownership Changes
Under the proposed rule, the surcharge is determined using a taxable status date of January 5 preceding the applicable fiscal year. However, the statute and proposed rule are silent regarding whether liabilities that occur after a change in ownership are borne by the current owner or the prior owner, even if the current owner is a primary resident. Uncertainty about liability following an ownership change could occur in the year in which ownership is transferred or because of an audit conducted by the Department of Finance in later years.

The rule should address circumstances in which a bona fide primary resident purchaser acquires a property after the taxable status date. If the surcharge must be paid by the purchaser, a purchaser who acquires and occupies a property as a primary residence could remain subject to a surcharge attributable solely to a prior owner's use of the property. This result creates unnecessary transactional friction, including escrow demands, indemnification provisions, and disputes between buyers and sellers. The final rule should provide that a purchaser who certifies their use as a primary residence after closing may obtain removal of the surcharge.

Similarly, the Department's ability to audit a property for six years and to impose liens on the property raise concerns for purchasers of units that could potentially have been non-primary residences. A purchaser who acquires a unit after a prior owner has submitted inaccurate information could potentially inherit liabilities associated with conduct in which the purchaser played no role. The final rule must expressly provide that penalties and other liabilities - including the risk of a lien being placed on the property - arising from inaccurate certifications submitted by a prior owner do not transfer to a bona fide purchaser for value who had no involvement in the prior submission.

Common Situations in Which the Tax Should Not Apply Must Be Clarified
The proposed rule fails to provide clarity about how the Department will treat certain types of units, including the situations outlined below. To address these types of circumstances, the Department should look to its current "contemplated use exemption" for not-for-profit organizations in addressing these types of circumstances so as to avoid unfair application of the surcharge when the unit is intended to be a primary residence but may not be for good reason.

The Treatment of Estates: The proposed rule does not specify how primary residence status will be determined after the death of an owner. The final rule should provide that:

• During the fiscal year in which an owner dies, primary residence status shall be determined based on the decedent's use of the property immediately prior to death; and

• During administration of the estate, the property shall continue to qualify for the exemption if it constituted the decedent's primary residence before death.

Probate and estate administration in New York routinely takes twelve to thirty-six months depending on estate complexity, litigation, and court backlogs. The final rule should provide that an estate should not become subject to the surcharge solely because a decedent is no longer physically occupying the property while probate and estate administration are ongoing.

The Behavior of a Primary Resident Tenant Should Not Impact an Owner Operating in Good Faith: The proposed rule does not clarify how the surcharge will be imposed in circumstances in which a property owner is listing a unit for rent on the taxable status date and leases the unit in a reasonable period of time in a good faith transaction. Similarly, it does not address situations in which an owner has entered into a lease with a primary resident tenant in an arm's length transaction, but on the taxable status date the tenant either no longer uses the unit as a primary residence or no longer occupies the unit. In these cases, the owner could be subject to the surcharge even though they have made or are making a good faith effort to ensure that the unit is occupied as a primary residence. In these circumstances, the Department should establish a process for the owner to demonstrate their good faith efforts to comply and not be subject to the surcharge. Additionally, the final rule should recognize that a month-to-month lease arrangement
following completion of an initial one-year lease does not disqualify a unit from being considered a primary residence.

Treatment of Unit Renovations and Combinations: Often, current New York City residents buy a new apartment in a different building or combine two apartments in the same building. When this happens (which could be for factors entirely outside of the owner's control such as flood, fire, or major building construction) it often requires renovation or construction work in the new or existing home that can take several months, if not years, to complete. As such, the local resident may own two homes in the five boroughs. In these circumstances, it would be deeply unfair for the tax to apply in situations where the resident intends to sell one of their homes after renovations/construction is complete in their new home. The final rule must clarify the documentation that primary residents who own two apartments as a result of purchasing a new home or combining multiple units can submit to substantiate their primary residence status.

The Treatment of Class 1 Properties with Mixed Occupancy is Unclear
The proposed rules do not address the situation in which a multi-unit Class 1 building has mixed occupancy between a primary resident owner and other occupants who could potentially be considered non-primary residents. The final rule should provide clarity as to how the Department will treat these types of situations.

The Sponsor Exclusion Should Reach Successor Sponsors, No-Action-Letter Projects, and Bulk Transfers
The excluded property definition applies only to units subject to an offering plan held by the original plan filer. This produces unintended results for functionally identical categories of projects: (i) successor sponsors that acquire a project and continue to offer and sell units under the offering plan; (ii) residential projects proceeding under Attorney General no-action letters rather than filed offering plans, which are subject to the same substantive regulatory framework; and (iii) bulk transfers of unsold inventory to affiliated entities, joint venture partners, or investors for continued offering. None of these has any relationship to surcharge avoidance, given that the units are still sponsor inventory being marketed and sold in the ordinary course. The final rule should exercise the Department's authority under Sections 1354(e)(1) and 11-3205(i)(1) to extend the exclusion to any successor to the original plan filer that holds units for continued offering or sale, any project operating under an Attorney General no-action letter, and any bulk transfer of unsold inventory
to an entity that continues to offer the units for sale.

The Department Should Explain How It Will Determine Values in Phase 2
Phase 2 of the surcharge begins July 1, 2028, and requires the Department to develop and implement an entirely new comparable-sales valuation methodology for individual cooperative and condominium units. The Department must provide owners, shareholders, boards, and other market participants with the ability to understand how these values will be determined.

REBNY respectfully requests that the Department address these issues before adopting a final rule. Thank you for your consideration.

CONTACT:
Zach Steinberg
Executive Vice President
Real Estate Board of New York
[email protected]