For New York State business owners, few things complicate a property’s value like environmental contamination. This is true whether it is a known issue on a manufacturing site or simply a lingering concern from a property’s past use. Yet many owners do not realize this factor may, and should, reduce their real property tax assessment.
Under New York law, real property must be assessed according to its actual condition as of each relevant taxable status date. The standard for that assessment is market value: the amount a willing buyer would pay a willing seller under ordinary conditions, with neither side under any compulsion to act. New York’s Constitution goes further, prohibiting assessments that exceed a property’s full value. Together, these principles mean that when environmental contamination is shown to depress a property’s actual worth, that reduced value must be reflected in the real property tax assessment.
New York courts have developed a fairly consistent approach for putting this principle into practice. The starting point is the property’s fair market value as if it were “clean” or free of contamination. From that figure, assessors are obligated to deduct the full outstanding cost to remediate the contamination or what is commonly referred to as the remaining “cost to cure” for each tax year under review.
For example, if a site requires $500,000 in remediation three years from now, that full cost, or what remains of it, should be subtracted from the property’s value as if it were “clean” in each of those years. It is not a one-time deduction or a deduction in just one year. As long as the expenditure is required to remediate the property, the deduction is allowed. This approach has been upheld across a range of contexts, from soil and groundwater contamination to asbestos remediation, and courts have made clear that a failure to apply this deduction could be reversible error.
The cost to cure, though, is only part of the picture. New York case law and guidance from state assessment authorities identify additional factors relevant to valuing a contaminated property such as:
- status as a designated federal or state Superfund site
- the extent of the contamination
- the estimated cleanup costs
- the present use of the property
- the ability to obtain financing
- indemnification in connection with the purchase of the property
- the potential liability to third parties
- “stigma” remaining after cleanup
Stigma is particularly important because it can even apply to properties that have never been officially designated contaminated but are, for example, likely to suffer from contamination. Courts have recognized that the mere risk that undetected or currently unclassified hazardous materials will be identified and would require remediation and rehabilitation can create a market stigma that a rational buyer would factor in when formulating an offer, making stigma potentially compensable in the tax assessment context as well.
For business and property owners in New York, especially in areas where decades of industrial and manufacturing use have left many parcels with some environmental history, the practical takeaway is straightforward: environmental contamination, whether confirmed or merely suspected, is not something to ignore for real property tax assessment purposes. If your property has known contamination, the full remaining cost of remediation should be reflected as a reduction in value for every year that cost remains outstanding. Even after remediation is complete, you may still be entitled to an adjustment for the stigma that contamination leaves behind.
Because such valuations are fact-specific with contamination, cleanup costs, stigma, etc., varying from property to property, an interested party who suspects their assessment fails to account for contamination related value loss should have their property reviewed by counsel experienced in tax certiorari proceedings. A periodic review of your assessment, particularly if your property has any environmental contamination history, is well worth the effort.