Owners of most income-producing properties in New York City have an obligation to file an annual Real Property Income & Expense (“RPIE”) form with the NYC Department of Finance (“DOF”). (For more information about the purpose of the RPIE forms and which owners are obligated to file same, see article written by colleague, Christopher Caslin.) For many years, whether an owner filed the RPIE form late, or not at all, was not available from the DOF nor made available on the public record. Last November, however, the DOF began issuing penalties for the failure to file the RPIE form in a timely manner (by early September of each calendar year), ranging from three to five percent of the assessed value of such income-producing property, depending on the type of the infraction. The penalty is entered as a charge on the tax records of the real property and becomes a lien on the property.
Currently, there is a two-year lag between the time the penalty accrues and/or is assessed and the time that the penalty is entered on the tax records. As an example, the penalties for 2010 RPIE non-compliance were added to the November 30, 2012 tax bills. Therefore, a purchaser who closed on a property prior to that date would not have known about the penalties which now constitute a lien against the property.
In these instances, the DOF has advised submitting an Innocent Purchaser Affidavit, on the DOF’s form, to the RPIE Unit. The form requires the address of the property at issue, the date on which the applicant took title to such property, the sales price and the amount of the penalty (as listed on the tax bills). In the affidavit, the applicant requests the City of New York to waive payment by the applicant of the RPIE non-filing fees assessed against the property and cancel any lien on the property relating to such charges. The applicant must certify that, to the best of its knowledge, at the time of the closing of title to the property at issue, the DOF’s records did not show that the charges were unpaid or the prior owner did not file the RPIE, and the applicant was not aware that payment of any of the charges was due. Further, the applicant must certify that the purchase and sale was an arms-length transaction and the consideration paid for the property was based on its market value.
Upon receipt of the affidavit, the RPIE Unit will independently research the transaction to determine if the RPIE penalty can be waived. We have been advised this could take as long as eight weeks. Fortunately, while waiting for a response, purchasers are not obligated to pay the RPIE penalties (but should nonetheless pay the remaining assessments in a timely manner). Interest will also not be added to the RPIE penalties during the period the RPIE Unit is performing its review.
Considering these implications, prudent purchasers (or their attorneys) should be proactive and ascertain, prior to closing, whether all RPIE forms for the property of interest have been filed. The purchaser can require the seller to represent to the purchaser that all RPIE forms have been filed, and that true, correct and complete copies of same have been provided to the purchaser (sellers can print their submitted forms here. A contingency can also be added to the purchase and sale agreement, making the transaction dependent upon the seller’s handling of any RPIE-related issues, and can include the obligation of placing money in escrow by the seller in an amount determined by the parties to be sufficient to cover any RPIE penalties. The purchaser may also want to expand the seller indemnity to include any fines and charges related to the seller’s failure to file all required RPIE forms.
For advice on how to structure your transaction to best protect your interests with respect to the RPIE penalties, contact attorneys in the firm’s real estate department.