Key Points

• The Pied-á-Terre Tax is imposed against tax lots.
• Co-op shareholders have shared liability risk.
• Co-op boards may want to consider lease amendments.

In response to New York City’s recently enacted Pied-á-Terre Tax (PAT), which we outlined in this June 8, 2026 client alert, cooperative boards may want to consider proposing proprietary lease amendments. While there must be an affirmative vote of a supermajority of shares to amend leases, we believe that amendments like the ones we propose can be considered.

The PAT is a surcharge on real estate taxes. Real estate taxes are charged to owners based on their tax lot. In condominiums, each owner has their own tax lot. As a result, it is the obligation of that owner to pay their PAT. If the PAT is not paid, it impacts only that owner.

In a co-op, individual apartments do not have their own tax lots. Instead, the building, which is owned by the cooperative corporation, has a tax lot and every owner owns shares in the corporation. As a result, if one shareholder fails to make their required PAT payment, all the shareholders of the corporation are affected, as the cooperative corporation is ultimately responsible for the tax. If a shareholder does not pay their PAT, the city may assess interest, but that also will be assessed against the building. The city also has the right to place a lien on the building. In fact, the city has little if any authority to take action against the defaulting shareholder. Thus, the board may find itself in a position where it has to assess all shareholders to pay the PAT owed by one shareholder.

Cooperatives are governed by multiple statutes. The Internal Revenue Code, which allows co-op shareholders to take pass through deductions for things like real estate tax and mortgage interest paid by their co-op, requires that co-ops have only one class of shares. Almost all co-ops are subject to another law as well – the Business Corporation Law. That statute requires that each share be equal. That means all shareholders must pay their financial obligations, such as maintenance, based on the charge per share as set by the board multiplied by the number of shares they own.

The Internal Revenue Code, however, makes an exception to its one-class-of-shares rule and allows boards to charge real estate taxes to a shareholder based upon separate allocations. That said, there are very few proprietary leases which specifically authorize boards to charge shareholders in any way other than on a per-share basis. As we do not know whether the courts will find that the statute is enough to allow boards to charge these tax obligations to the specific shareholder against whom they were assessed, we believe it prudent for boards to consider proposing amendments to the proprietary lease.

We are preparing a series of suggested amendments which address the following, including giving boards the authority to promulgate certain rules in the future:

• Requiring shareholders to pay the PAT specifically attributable to them.
• Giving the board the ability to establish a procedure for how and when shareholders should be required to pay their PAT obligations, whether in a lump sum, in monthly or quarterly installments to be held in escrow by the coop until monies are due to the city, or in some other manner.
• Establishing procedures for shareholder challenges to imposition of the PAT.
• Providing for indemnification by shareholders for the PAT and any fines, penalties, interest or damages assessed because of their failure to pay.
• Setting payment of PAT as a condition to the assignment (sale) of the shares.
• Exempting payment of transfer (flip) taxes in the event shareholders who currently own in a trust want to change the trust structure to come into compliance with the PAT definitions.
• Prescribing remedies for a default.

Please contact a member of our Cooperative & Condominium Practice Group to discuss whether and which lease amendments may be right for your building.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the authors and not necessarily this law firm or its clients.