During the waning hours of the 2023 legislative session, New York lawmakers passed the Affordable Housing Rehabilitation Program (the “Program”) to replace the lapsed J-51 tax break that expired on July 1, 2022. Similar to the predecessor J-51 program, the new Program uses tax breaks to incentivize multifamily landlords to renovate their buildings; however, under the new Program, the scope of eligible properties is narrowed to mostly affordable properties.

Following signature by Governor Hochul, which is expected, the Program must be authorized by the New York City Council before it can take effect, as the state legislation merely gives the city of New York the ability to implement the Program. If approved by the governor and the New York City Council as anticipated, the new tax break applies to qualifying renovation work completed after June 29, 2022, and before June 30, 2026.

The Program provides tax abatements for up to 20 years to eligible buildings in New York City. For rental buildings, the Program requires eligible buildings to be at least 50% affordable, receive “substantial governmental assistance,” or be owned and operated by a limited-profit housing company to qualify for an abatement. The New York City Department of Housing Preservation and Development (“HPD”) will determine the threshold income levels for the affordable units. By way of comparison, the expired J-51 program provided tax abatements for up to 34 years and did not contain any affordability requirements.

Under the new Program, the tax abatement is capped at 70% of the certified reasonable cost of the eligible construction over the life of the tax break (the reasonable cost of specific work types is determined by HPD). The new Program will also apply to condominium and co-op buildings in New York City with an assessed valuation of less than $45,000 per unit, which is a slight increase from the predecessor J-51 program.

As a condition to receiving the tax abatement under the Program, each building owner will be required to record a restrictive declaration binding the building to the Program requirements for 15 years, including keeping the building units rent-stabilized for 15 years (even if the term of the abatement is less than 15 years). Landlords also must certify they have not harassed tenants in the past five years to qualify for the abatement.

Harris Beach’s Affordable Housing team is following this development and others related to the industry. If you have questions about this or related matters, please reach out to Michael A. Discenza at (212) 912-3605 and mdiscenza@harrisbeach.com; Michael E. Condon at (585) 419-8603 and mcondon@harrisbeach.com; Melanie C. Marotto at (716) 200-5230 and mmarotto@harrisbeach.com; Charles (Chip) W. Russell at (585) 419-8635 and crussell@harrisbeach.com; or the Harris Beach attorney with whom you most frequently work.

This alert is not a substitute for advice of counsel on specific legal issues.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.