United States: New Yorks 421-a Tax Exemption For New Residential Buildings Is Back

Kenneth Lowenstein is a Partner in Holland & Knight's New York office

The New York State Legislature has passed and Gov. Andrew Cuomo has signed legislation re-establishing the 421-a Tax Exemption Program after a nearly two-year hiatus. The program, which was first put in place in the early 1970s, partially exempts new residential buildings from New York City's Real Property Tax. The legislation largely re-enacts the amendments passed in 2015 but suspended until provisions relating to the payment of construction workers were added to the program.

Holland & Knight Partner Kenneth Lowenstein in the firm's New York City office represented a major industry trade organization, the Real Estate Board of New York (REBNY), in the drafting and negotiating of the legislation.

Below is a closer look at the major provisions of the re-enacted 421-a Program as they relate to rental projects1:

Eligibility

Buildings with six or more dwelling units starting construction after Jan. 1, 2016, and prior to June 15, 2022, and which complete construction prior to June 15, 2026, are eligible to receive benefits under the new 421-a Program. In addition, buildings which started construction prior to Jan. 1, 2016, and have not received any benefits under the prior 421-a law may elect to receive benefits under the new 421-a Program. There is no longer any requirement that a site must have been under-utilized three years prior to the start of construction. However, if the site contained dwelling units three years prior to the start of construction, the new building must have at least one affordable unit for each dwelling unit that existed on such date.

Wage Requirement

Developers of buildings with 300 or more rental units located in three so-called "enhanced affordability areas" must, in addition to the affordability requirements, pay an average hourly wage to construction workers on the building of $60 per hour if in Manhattan and $45 per hour if in Brooklyn or Queens. The three enhanced affordability areas are: 1) Manhattan south of 96th Street, 2) Community Boards 1 and 2 in Brooklyn and within 1 mile of the bulkhead line, and 3) Community Boards 1 and 2 in Queens and within 1 mile of the bulkhead line. Buildings where more than 50 percent of the units are affordable as well as buildings that are subject to a project labor agreement are not subject to the wage requirement.

More information on this requirement is provided in the "Construction Workers" section below.

Affordability Requirements

  1. For buildings with fewer than 300 rental dwelling units or buildings with more than 300 rental dwelling units not located in an enhanced affordability area, there are three options:
    • Affordability Option A: 10 percent of the units affordable to households with incomes not exceeding 40 percent of Area Median Income (AMI)2; 10 percent of the units affordable to households with incomes not exceeding 60 percent of AMI; 5 percent of the units affordable to households with incomes not exceeding 130 percent of AMI. Buildings may not receive governmental assistance but can receive tax-exempt financing and 4 percent federal Low-Income Housing Tax Credits.
    • Affordability Option B: 10 percent of the units affordable to households with incomes not exceeding 70 percent of AMI and 20 percent of the units affordable to households with incomes not exceeding 130 percent of AMI. This option allows buildings to receive assistance from the city, state or federal governments as well as receive tax-exempt financing and 4 percent or 9 percent federal Low-Income Housing Tax Credits.
    • Affordability Option C: 30 percent of the units affordable to households with incomes not exceeding 130 percent of AMI. This option is not available to sites located in Manhattan south of 96th Street.
  1. For buildings with 300 or more rental dwelling units located in an enhanced affordability area, there are also three options. Affordability Option E is identical to Affordability Option A, except that the highest tier is 120 percent AMI instead of 130 percent AMI. Affordability Options F and G are identical to Affordability Options B and C, respectively.

Benefits

  1. Buildings not subject to the average hourly wage requirement receive a 100 percent exemption for the construction period (limited to three years), a 100 percent exemption for the next 25 years, and for years 26 through 35, a 25 percent or 30 percent exemption depending on the percentage of affordable units. As was the case under the old 421-a Program, taxes must be paid based on the assessed value of the land and building in the year prior to the start of construction (the "mini-tax") and when the amount of commercial, community facility and accessory use space exceeds 12 percent of the floor area of the building.
  2. Buildings subject to the average hourly wage requirement receive an enhanced exemption – 35 years with a 100 percent exemption plus a 100 percent exemption for the construction period (limited to three years). The mini-tax and the 12 percent limitation described above apply to these buildings.

Duration of Affordability Requirements

Affordable units in buildings not subject to the average wage requirement must be rent-stabilized and remain affordable for 35 years after completion of the building, and any affordable tenant residing in the building at the expiration of this 35-year period has the right to remain as a rent-stabilized tenant at the affordable rents until they vacate the unit.

Affordable units in buildings subject to the average wage requirement must be rent-stabilized and remain affordable for 40 years after completion of the building, and any affordable tenant residing in the building at the expiration of this 40-year period has the right to remain as a rent-stabilized tenant at the affordable rents until they vacate the unit.

Other Affordability Requirements

The affordable units must either have the same proportional unit mix as the market-rate units, or at least 50 percent of the affordable units must be two bedrooms or larger and no more than 25 percent of the affordable units can be studios.

All rental units in a building must share a common entrance with other rental units in such building and cannot be isolated to a specific floor. Under current New York City Department of Housing Preservation and Development (HPD) regulations, no more than 70 percent of the units on a floor can be affordable units.

Rent Stabilization

In a significant change from the old 421-a Program, market rate units are not subject to rent stabilization if the rent on the unit exceeds the luxury decontrol limit (currently $2,700 per month).

Building Service Employees

Except for buildings with fewer than 30 units and certain affordable buildings, all persons regularly employed at and working on a building receiving 421-a benefits must be paid the "prevailing wage."

Construction Workers

The most significant changes to the 2015 amendments: As noted earlier, developers of buildings in the enhanced affordability areas must pay construction workers a minimum average hourly wage of $60 for Manhattan sites and $45 for Brooklyn and Queens sites. (In April 2020 and every three years thereafter, these minimums increase by 5 percent.) The average wage is calculated by dividing the total of all wages and fringe benefits (e.g., vacation benefits, health insurance, apprenticeship training, payroll taxes) paid to the construction workers by the total number of hours of construction work.

The developer is required to designate a certified public accountant (CPA) to act as the "independent monitor" to collect the wage reports from each contractor and sub-contractor. Contractors and sub-contractors are required to submit their reports to the independent monitor within 90 days of the completion of their work. No later than one year after completion of construction, the independent monitor must submit a certified project-wide payroll report to the New York City comptroller setting forth the total hours, total wages, the average hourly wage and the amount of any deficiency. The developer, contractors and sub-contractors are each subject to a fine of $1,000 per week (or portion), with a maximum fine of $75,000 if the reports are not timely submitted.

When the independent monitor's report shows that the minimum average wages paid on a building was less than the required minimum average wage and such deficiency was no more than 15 percent below the required minimum (e.g., currently $51 for Manhattan and $38.75 for Brooklyn and Queens), then the developer must pay within 120 days of the date of the submission of the report the amount of such deficiency to a third-party administrator. This entity will be approved by the city comptroller on the recommendation of REBNY and the Buildings Trade Council. The third-party administrator is then responsible for distributing these funds to the construction workers. Where the average hourly wage paid to the construction workers was more than 15 percent below the required minimum, the developer must pay the difference to the third-party administrator and, in addition, pay a penalty equal to 25 percent of the amount of such deficiency unless the building was the subject of a job action such as a strike, picketing or sickout. If the developer does not make the required payments within the 120-day period, it is subject to a fine of $1,000 per week (or portion), with a maximum fine of $75,000.

Opting In

Developers of buildings with 300 or more rental dwelling units not located in an enhanced affordability area have the option of electing to comply with the wage requirements and receiving the enhanced 35-year exemption. These developers are required to pay an average wage of $45 per hour regardless of where actually located.

Multi-Phase or Multi-Building Projects

Sites containing more than one building or being constructed in multiple phases are eligible for benefits under the new 421-a Program provided that the project as a whole meets the affordability requirements.

Application Process and Filing Fee

Unlike the old 421-a Program, which had a two-step application process, the new 421-a Program provides that a single application is filed within one year after the completion of construction of the building. The legislation authorizes HPD to establish a filing fee of $3,000 per unit and prohibits HPD from turning down an application for failure to meet the minimum average wage requirement.

Footnotes

1 This discussion does not include cooperatives and condominiums that may be eligible for benefits under certain limited circumstances.

2 The current AMI for the New York Metropolitan Area is $90,600 for a family of four.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.