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Bill passed by the state legislature looks to close condo "loophole," what's next?

This aspect of property law has been utilized by builders and homeowners for years because in New York State condos are taxed at a lower rate.

ERIE COUNTY, N.Y. — The days of an unofficial property tax discount for certain new build condos could be numbered as Governor Hochul weighs signing legislation that would stop some full-size homes from qualifying.

This aspect of property law has been utilized by builders and homeowners for years because in New York State condos are taxed at a lower rate even when their valuations are a lot higher than other homes. And depending on who you ask, there are some less than stellar opinions.

The majority in the state legislature have called it a "loophole" and passed a bill in June to stop it from being awarded. Governor Hochul however has yet to sign it.

"It's a loophole that's being exploited where people who are very wealthy who can afford to pay their share of property taxes, are finding a way to not do that," said Lancaster Assemblymember Monica Wallace (D).

Wallace has co-sponsored bill A3491B that if signed into law would prevent new homes posing as condos from being considered for the tax status. It would not be retroactive, however.

Records show that a 2,7000 square foot condo in Clarence that sold for $880,000 was assessed at $514,000. Another in the same area sold for $733,000 but was assessed at $486,000 and taxed as such.

In Lancaster, a home valued at $540,000 last year Wallace said was assessed at $327,000.

"I don't blame the people who buy these houses...everybody wants to reduce their property tax burden but it's not fair that only some people get to do it, because they have the means to buy into these fancy communities," Wallace said.

Condo status was created in the 1960s as a way to protect New York City apartment owners but in Western New York it's led to development that Wallace believes has "unfairly shifted the cost onto people who are less able to afford it."

Builders apply for condo tax status by establishing a condominium association with the county clerk's office usually prior to selling any property. Paperwork is also filed with the New York State Attorney General's Office.

Condo status is often part of the marketing used to attract potential buyers because of the tax savings. These homeowners then may pay an HOA (Homeowner's Association) fee for services like snow plowing of the private road on which their new home is built.

"When you don't have any increase in density. Conventional lot sizes that you compare to a normal single-family home site and you receive condo status, we do feel that's an unfair advantage," said Phil Nanula, President & CEO of Essex Homes.

Nanula who is a part of the Buffalo Niagara Builders Association (BNBA) said the group recognizes that some past projects, although done to the "letter of the law" were unfair but they also fear that the legislation being considered paints the issue with too broad a brush. His company has several patio home developments around Western New York, which are a type of condo status property but unlike the homes posing as condos, the patio lots are much smaller and the homes are 10 feet apart.

Nanula and the BNBA would like to see certain guidelines for patio homes for example carved out and fear an "extremely negative" effect on development locally if they aren't.

"The form of ownership that has been created through this law has allowed us to build primarily what is empty nester product," Nanula said.

Nanula said some condo status properties like patio homes have helped retain people in Western New York, like those on a fixed income or snowbirds who otherwise wouldn't consider keeping a second property locally. He added that smaller lots may also increase a town's tax base because instead of one taxpayer on what would typically be a buildable lot, there would be multiple.

The legislation would give municipalities the ability to individually decide to continue condo tax status or not.

With the legislation in limbo builders like Henry Jurek III, Vice President of Jurek Custom Builders said he has delayed plans to apply for condo status for Phase 8 of their Spaulding Green development in Clarence not knowing what the future holds.

“My ultimate hope is it stays the way it is but if it can't which is fine I see both sides of the story so if it is a square footage requirement or something that is fairer to everybody,” Jurek said.

In a statement, Warren Wheeler of the New York State Assessors Association which has been eager to close the loophole said:

"The NYS Assessors Association supports the bill that will be submitted to the governor’s office this bill goes a long way toward rectifying what we call the condo loophole. It gives municipalities the option of assessing condos at full market value instead of as rental properties."

Governor Hochul is said to be reviewing the legislation. No other timeline or information was provided.

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