Forchelli Deegan Terrana LLP (“FDT”) is pleased to announce that the New York Court of Appeals published a unanimous decision, which has broad and profound impacts for commercial tenants who pay real estate taxes in Matter of DCH Auto v. Town of Mamaroneck, APL-2021-00103 (“DCH Auto”).
In 2019, the Appellate Division, Second Department held in DCH Auto that tenants who are obligated to pay real property taxes and authorized to challenge the tax assessment in their lease had no right to file an administrative complaint challenging the tax assessment, interpreting the statute to permit only the property owner to do so. This decision was appealed to the Court of Appeals, who has now reversed.
Previously, it had been generally accepted that taxpayers who are obligated to pay the taxes and/or are granted the right to challenge the tax assessment through a net lease had the right to file the administrative complaint. The language of the 2019 DCH Auto decision placed thousands of commercial taxpayers who challenge their taxes pursuant to net leases at serious risk. Those risks included having existing tax certiorari proceedings dismissed or missing critical deadlines for future tax years, resulting in tenants having the obligation to pay taxes, but no right to challenge the underlying assessment. Several taxing jurisdictions filed motions seeking to dismiss existing tax certiorari proceedings brought by net lessees. While FDT had success in defeating those motions, the uncertainty created by DCH Auto delayed and overcomplicated resolving those cases favorably for our clients. According to John V. Terrana, Chair of the FDT Tax Certiorari Department, “many taxing jurisdictions simply refused to proceed with existing tax certiorari proceedings brought by net lessees after the 2019 DCH Auto decision. Today’s ruling by the highest court in the state will allow these cases to move forward and permit us to seek relief for our clients.”
Forchelli Deegan Terrana LLP filed an amicus curiae brief with the Court of Appeals on behalf of the International Council of Shopping Centers (ICSC), a global trade organization consisting of 70,000+ members in over 100 countries, which serves the retail real estate industry. ICSC membership includes thousands of commercial net lessees facing potential harm from the Second Department’s ruling. In their amicus brief, FDT attorneys John V. Terrana, Peter B. Skelos, Nathan R. Jones and Douglas W. Atkins successfully argued that DCH Auto should be reversed or modified, due to the potentially disastrous impact on commercial net leases.
Emphasizing the gravity of the DCH Auto appeal, a number of other amicus curiae filed briefs with the Court of Appeals: CVS, Stop & Shop Supermarket Co. and Wakefern Foods Corp. all filed amicus briefs mirroring the arguments of ICSC. On the other side, the New York State School Boards Association, the New York State Conference of Mayors and Municipal Officials and the Association of Towns of the State of New York filed amicus briefs in support of the 2019 DCH Auto decision.
In response to the arguments made on behalf of ICSC and others, the Court of Appeals reversed the Second Department’s DCH Auto decision by a vote of 7-0 and established binding precedent clarifying that a net tenant who is contractually obligated to pay real estate taxes has the statutory right to file the administrative complaint. As a result, commercial tenants, including ICSC members, who challenge real property taxes based on net leases will continue to be able to file the administrative complaint, and existing tax certiorari proceedings will proceed without risk of dismissal on that basis. To quote the Court of Appeals in this case, “Such a result ensures that the party with the economic interest and legal right to challenge an assessment will not be unable to raise a challenge because an out-of-possession landlord that lacks economic incentive fails to file an administrative complaint.”