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Thomas D. Kearns
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Using Commercial Condo Structure to Gain Exemption on Real Estate Taxes

Exploring the use of commercial condo structure to gain exemption on real estate taxes

Generally, in New York City a not-for-profit entity is not entitiled to an exemption from real estate taxes unless they owned the fee. For example, if a not-for-profit was a ground lessee of the entire property under a triple net lease it would still have to pay all of the property's real estate taxes. In negotiating the ground lease at 407 East 61 Street with Cornell Medical, my partner Sam Ross, drafted a provision that permitted Cornell to convert its leasehold estate into a commercial condominium. Cornell entered into two subleases with itself and became the "declarant" under the declaration of condominium for the leasehold estate thereby transforming the leasehold into a fee interest for purposes of the tax exemption. This was accepted by the New York State Attorney General and its New York City Department of Finance subsequently approved the property for a full  real estate tax exemption.

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