As you know, we have been keeping you up to date on New York City's new pied-à-terre tax and the potential impact it may have on cooperative and condominium communities.
We were preparing to send our cooperative clients an important update regarding the new tax and, in particular, why cooperative boards may need to consider amending their proprietary leases to protect the cooperative from being affected by the payments required by the Co-op for the taxes attributable to an individual shareholder.
Before sending that update, however, there was a significant new development that just occurred.
On August 10, 2026, a New York State Supreme Court Justice issued a temporary restraining order concerning New York City's implementation of the new pied-à-terre tax. The City immediately appealed the decision, which automatically stayed the temporary restraining order. As a result, the tax has not been invalidated, and the City is presently continuing with implementation while the litigation proceeds.
In addition, yesterday, President Trump spoke out strongly against the tax and said, among other comments, this tax on non primary residences of Wesley’s renewed “doesn’t work in America”. He also said he is exploring a whether the federal government can stop it and “avert this disaster before it is too late.”
What Happened?
The new pied-à-terre tax was enacted by New York State earlier this year and authorizes New York City to impose an additional annual tax on certain high-value residential properties that are not used as primary residences.
The lawsuit does not presently seek to invalidate the tax itself. Rather, the challenge focuses principally on the manner in which the New York City Department of Finance ("DOF") is implementing the law and determining which properties are subject to the tax.
As part of the rollout, DOF identified approximately 900,000 properties for review and reportedly sent notices to approximately 17,000 property owners identified as potentially subject to the surcharge. The challenged procedure effectively requires those owners to demonstrate that their properties qualify for the primary-residence exemption.
The Court Temporarily Blocked Implementation
On August 10, Justice Wayne Ozzi of the New York State Supreme Court, Richmond County, issued a temporary restraining order that would have significantly restricted DOF's implementation of the tax.
Among other things, the order would have prevented DOF from:
• Collecting the surcharge from approximately 17,000 owners who received notices;
• Continuing to act upon those notices;
• Processing and granting exemptions through the challenged procedure; and
• Continuing to publish the approximately 900,000-property list that DOF had placed online.
Importantly, the Court did not declare the pied-à-terre tax unconstitutional, invalidate the underlying legislation, or permanently prohibit the City from imposing the tax. The temporary order concerned the City's current implementation and enforcement procedures.
The City Immediately Appealed
The City immediately appealed Justice Ozzi's order.
Under New York law, the City's appeal automatically stayed the temporary restraining order. Accordingly, the restrictions imposed by Justice Ozzi are themselves presently stayed, and the City has indicated that it will continue implementing the tax while the litigation proceeds.
The parties are currently scheduled to return to court on August 31, 2026.
In other words, this is moving very quickly, and the legal and practical status of the City's implementation procedures could change again within weeks.
Why This Is Particularly Important for Co-ops
The issue presents a unique concern for cooperative corporations because individual cooperative shareholders do not receive separate real estate tax bills from the City. The cooperative corporation owns the building and is the taxpayer who pays the tax bill.
Under the new law, a pied-à-terre surcharge attributable to a particular cooperative apartment (shareholder) will ultimately become an obligation appearing on the cooperative corporation's tax bill, even though the tax was triggered by the individual shareholder's use of his or her apartment as a non-primary residence and should be the responsibility of the shareholder of the apartment.
That creates a potentially significant problem for cooperative boards.
If the cooperative is obligated to pay the City, but its proprietary lease does not clearly authorize the cooperative to charge that tax back to the shareholder whose apartment generated it, the cooperative could face collection and enforcement issues. In the worst case, the remaining shareholders could effectively be forced to carry a tax obligation attributable to one shareholder.
For that reason, just prior to this latest court development and presently, we were preparing a notice to you to recommend that cooperative boards review their proprietary leases and consider whether an amendment is necessary expressly authorizing the cooperative to charge back to an affected shareholder any pied-à-terre tax or similar tax assessed against the cooperative as a result of that shareholder's ownership, occupancy or use of an apartment.
What Should Boards Do Now?
While it is possible the law can change, the safest approach is to evaluate whether an amendment is needed for your Co-op. If one is needed, we can then discuss whether the Board should take steps now to seek to amend its Proprietary Lease or wait.
The tax remains law, and the City's implementation is presently continuing because of the automatic stay resulting from the City's appeal. At the same time, the court challenge directly concerns how the City is attempting to administer and enforce the new law, and further developments are expected shortly.
Regardless, we are closely monitoring the litigation, including the August 31 court proceedings, as well as any additional guidance issued by DOF. As soon as there is a meaningful development, we will provide another update.
If you do decide to wait and it ultimately becomes clear that the pied-à-terre tax will be implemented and enforced substantially as presently contemplated, cooperative boards will likely need to move quickly to review and, where appropriate, amend their proprietary leases to ensure that taxes attributable to an individual shareholder can be charged back to that shareholder rather than becoming a financial obligation borne by the cooperative and its other shareholders.
We are tracking this issue closely and will be prepared to assist our cooperative and condominium clients as the law and the pending litigation develop.
If you would like us to review your Proprietary Lease and discuss whether your Co-op would require such an amendment as well as the steps necessary to attempt to accomplish such an amendment, please call or email us.
