State of New York
Supreme Court : County of Monroe

For a Judgment Pursuant to CPLR Article 78

- against -

Index No. 7474/94

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ANDREW V. SIRACUSE, J.

Petitioner, the Max and Marian Farash Charitable Foundation, is a not-for-profit trust which distributes funds to worthy organizations both in Rochester and elsewhere. On January, 18, 1994, it received by charitable donation a building at 79 North Clinton Avenue in the City of Rochester. The donor, the Regional Council on Aging, is also the chief tenant of the building, occupying 15,734 square feet of the approximately 28,000 square feet of usable space. Another tenant, the Community Nursing Council, rents 1549 square feet. The rest of the building is vacant.

In previous years, during the ownership of the Regional Council, the City of Rochester had granted the building an exemption from real property taxes. That exemption was denied the Foundation, and after appropriate administrative appeals it has brought this proceeding under Article 78 of the CPLR.

The gist of the Foundation's petition is that both it and its tenants are Federally tax-exempt charitable organizations and the building must thus be accorded exempt status. As the City properly responds, however, the test is not that simple. The exemptions in Real Property Tax Law § 420-a are to be construed strictly (Delancey Street Foundation v Bd. of Assessment Review and Assessors of Town of Southeast, 112 AD2d 132). Property held by qualifying organizations is not necessarily exempt from taxation; it must be used for the organization's qualifying activities. It has long been established that income-generating property held by an otherwise qualifying body is not exempt simply because the income is used to finance the body's activities (Pratt Institute v City of New York, 183 NY 151).

The Legislature has established one exception to this rule: property leased from one charity to another is not subject to real property tax

so long as any moneys paid for such use do not exceed the amount of the carrying, maintenance and depreciation charges of the property or portion thereof, as the case may be (Real Property Tax Law § 420-a [2]).so long as any moneys paid for such use do not exceed the amount of the carrying, maintenance and depreciation charges of the property or portion thereof, as the case may be (Real Property Tax Law § 420-a [2]).

It is necessary to analyze both the leases and the finances of the building, a task made difficult by the various and inconsistent figures provided by the Foundation. The Court agrees with the City in framing the issue in terms of costs and income per square foot. The Foundation could not entitle itself to an exemption simply by leaving the building half empty, balancing the costs of the entire building against the income from half. The statute indicates that costs must be apportioned on this basis by the use of the language "the property or any portion thereof, as the case may be".¹

The Regional Council's rent is $10.17 per square foot, and the Nursing Council pays $9.34. Estimates of carrying, operating and depreciation charges are more difficult, but the Foundation's own figures do not support a finding of more than about $105,000 for maintenance and other allowable expenses and $15,000 in depreciation. The per-square-foot costs, then, are no more than $120,000/28,000, or $4.29. (Even if all costs are charged to the occupied 17,000 square feet of space the costs are $7.06 per square foot.) These figures do not support the Foundation's petition; instead they support the City's claim that the building generates market rents.

The Foundation has, throughout, attempted to include expenses in its papers which do not fall within the three categories allowed by the statute; in its original position it tried to show the non-profit nature of the lease by adding in the property tax bill of $71,000, and in its reply papers, which were served late, it attempts to charge against the tenants the five percent of the value of the building which it is required to donate annually in order to maintain its Federal tax exemption. This last is not an expense related to carrying costs, maintenance or depreciation. As the City argued, there is no reason for the tenants to subsidize the Foundation's charitable donations.

The Foundation also claimed that the Regional Council has recently fallen behind in its rent and a reduction to non-profit levels is in progress. This as much as admits that the current lease is in excess of the level allowed, and in doing so the Foundation essentially conceded that the Assessor's decision, made with the information submitted at the time, was correct. Should the leases be renegotiated to pass through the costs allowed by law the Foundation would be able to apply for an exemption on the next year's tax bill, a course invited by the City.

Finally, there is no merit to the suggestion that a "rebate" has brought the Nursing Council's rent down to cost (an amount apparently estimated by the Farash Corporation at $2.62 a square foot.) The Farash Corporation, a forprofit real estate firm connected with the Foundation, has apparently agreed to donate to the Council the difference between the base rent and this amount. This sum, while designated a reimbursement, is more accurately a donation by a taxable entity (the Corporation) passed through to a non-taxable one (the Foundation). It stands as further proof that the rents charged by the Foundation are market rents, and do not reflect the costs allowed to be borne by tenants under the Real Property Tax Law.²

For these reasons the petition is dismissed, with costs. The Corporation Counsel's office may submit the order after circulating it to opposing counsel.

DATED: December 2, 1994

Andrew V. Siracuse, J.S.C.

Note 1. The unoccupied portion of the building is, according to caselaw, subject to taxation unless there are immediate and good faith plans to devote it to permitted uses (Assembly of God v Lynch, 113 AD2d 1016). At oral argument the Foundation's attorney stated that tenants were being sought for the remainder of the building. The City has not pressed this issue, and the Court declines to rule on whether the Foundation has met this test; the result reached herein makes the issue moot.

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Note 2. The City has also provided proof that the rents charged are comparable to those charged commercial tenants in similar buildings.

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