United States: New Yorks 421-a Tax Exemption For New Residential Buildings Is Back

Kenneth Lowenstein is a Partner in Holland & Knight's New York office

The New York State Legislature has passed and Gov. Andrew Cuomo has signed legislation re-establishing the 421-a Tax Exemption Program after a nearly two-year hiatus. The program, which was first put in place in the early 1970s, partially exempts new residential buildings from New York City's Real Property Tax. The legislation largely re-enacts the amendments passed in 2015 but suspended until provisions relating to the payment of construction workers were added to the program.

Holland & Knight Partner Kenneth Lowenstein in the firm's New York City office represented a major industry trade organization, the Real Estate Board of New York (REBNY), in the drafting and negotiating of the legislation.

Below is a closer look at the major provisions of the re-enacted 421-a Program as they relate to rental projects1:


Buildings with six or more dwelling units starting construction after Jan. 1, 2016, and prior to June 15, 2022, and which complete construction prior to June 15, 2026, are eligible to receive benefits under the new 421-a Program. In addition, buildings which started construction prior to Jan. 1, 2016, and have not received any benefits under the prior 421-a law may elect to receive benefits under the new 421-a Program. There is no longer any requirement that a site must have been under-utilized three years prior to the start of construction. However, if the site contained dwelling units three years prior to the start of construction, the new building must have at least one affordable unit for each dwelling unit that existed on such date.

Wage Requirement

Developers of buildings with 300 or more rental units located in three so-called "enhanced affordability areas" must, in addition to the affordability requirements, pay an average hourly wage to construction workers on the building of $60 per hour if in Manhattan and $45 per hour if in Brooklyn or Queens. The three enhanced affordability areas are: 1) Manhattan south of 96th Street, 2) Community Boards 1 and 2 in Brooklyn and within 1 mile of the bulkhead line, and 3) Community Boards 1 and 2 in Queens and within 1 mile of the bulkhead line. Buildings where more than 50 percent of the units are affordable as well as buildings that are subject to a project labor agreement are not subject to the wage requirement.

More information on this requirement is provided in the "Construction Workers" section below.

Affordability Requirements

  1. For buildings with fewer than 300 rental dwelling units or buildings with more than 300 rental dwelling units not located in an enhanced affordability area, there are three options:
    • Affordability Option A: 10 percent of the units affordable to households with incomes not exceeding 40 percent of Area Median Income (AMI)2; 10 percent of the units affordable to households with incomes not exceeding 60 percent of AMI; 5 percent of the units affordable to households with incomes not exceeding 130 percent of AMI. Buildings may not receive governmental assistance but can receive tax-exempt financing and 4 percent federal Low-Income Housing Tax Credits.
    • Affordability Option B: 10 percent of the units affordable to households with incomes not exceeding 70 percent of AMI and 20 percent of the units affordable to households with incomes not exceeding 130 percent of AMI. This option allows buildings to receive assistance from the city, state or federal governments as well as receive tax-exempt financing and 4 percent or 9 percent federal Low-Income Housing Tax Credits.
    • Affordability Option C: 30 percent of the units affordable to households with incomes not exceeding 130 percent of AMI. This option is not available to sites located in Manhattan south of 96th Street.
  1. For buildings with 300 or more rental dwelling units located in an enhanced affordability area, there are also three options. Affordability Option E is identical to Affordability Option A, except that the highest tier is 120 percent AMI instead of 130 percent AMI. Affordability Options F and G are identical to Affordability Options B and C, respectively.


  1. Buildings not subject to the average hourly wage requirement receive a 100 percent exemption for the construction period (limited to three years), a 100 percent exemption for the next 25 years, and for years 26 through 35, a 25 percent or 30 percent exemption depending on the percentage of affordable units. As was the case under the old 421-a Program, taxes must be paid based on the assessed value of the land and building in the year prior to the start of construction (the "mini-tax") and when the amount of commercial, community facility and accessory use space exceeds 12 percent of the floor area of the building.
  2. Buildings subject to the average hourly wage requirement receive an enhanced exemption – 35 years with a 100 percent exemption plus a 100 percent exemption for the construction period (limited to three years). The mini-tax and the 12 percent limitation described above apply to these buildings.

Duration of Affordability Requirements

Affordable units in buildings not subject to the average wage requirement must be rent-stabilized and remain affordable for 35 years after completion of the building, and any affordable tenant residing in the building at the expiration of this 35-year period has the right to remain as a rent-stabilized tenant at the affordable rents until they vacate the unit.

Affordable units in buildings subject to the average wage requirement must be rent-stabilized and remain affordable for 40 years after completion of the building, and any affordable tenant residing in the building at the expiration of this 40-year period has the right to remain as a rent-stabilized tenant at the affordable rents until they vacate the unit.

Other Affordability Requirements

The affordable units must either have the same proportional unit mix as the market-rate units, or at least 50 percent of the affordable units must be two bedrooms or larger and no more than 25 percent of the affordable units can be studios.

All rental units in a building must share a common entrance with other rental units in such building and cannot be isolated to a specific floor. Under current New York City Department of Housing Preservation and Development (HPD) regulations, no more than 70 percent of the units on a floor can be affordable units.

Rent Stabilization

In a significant change from the old 421-a Program, market rate units are not subject to rent stabilization if the rent on the unit exceeds the luxury decontrol limit (currently $2,700 per month).

Building Service Employees

Except for buildings with fewer than 30 units and certain affordable buildings, all persons regularly employed at and working on a building receiving 421-a benefits must be paid the "prevailing wage."

Construction Workers

The most significant changes to the 2015 amendments: As noted earlier, developers of buildings in the enhanced affordability areas must pay construction workers a minimum average hourly wage of $60 for Manhattan sites and $45 for Brooklyn and Queens sites. (In April 2020 and every three years thereafter, these minimums increase by 5 percent.) The average wage is calculated by dividing the total of all wages and fringe benefits (e.g., vacation benefits, health insurance, apprenticeship training, payroll taxes) paid to the construction workers by the total number of hours of construction work.

The developer is required to designate a certified public accountant (CPA) to act as the "independent monitor" to collect the wage reports from each contractor and sub-contractor. Contractors and sub-contractors are required to submit their reports to the independent monitor within 90 days of the completion of their work. No later than one year after completion of construction, the independent monitor must submit a certified project-wide payroll report to the New York City comptroller setting forth the total hours, total wages, the average hourly wage and the amount of any deficiency. The developer, contractors and sub-contractors are each subject to a fine of $1,000 per week (or portion), with a maximum fine of $75,000 if the reports are not timely submitted.

When the independent monitor's report shows that the minimum average wages paid on a building was less than the required minimum average wage and such deficiency was no more than 15 percent below the required minimum (e.g., currently $51 for Manhattan and $38.75 for Brooklyn and Queens), then the developer must pay within 120 days of the date of the submission of the report the amount of such deficiency to a third-party administrator. This entity will be approved by the city comptroller on the recommendation of REBNY and the Buildings Trade Council. The third-party administrator is then responsible for distributing these funds to the construction workers. Where the average hourly wage paid to the construction workers was more than 15 percent below the required minimum, the developer must pay the difference to the third-party administrator and, in addition, pay a penalty equal to 25 percent of the amount of such deficiency unless the building was the subject of a job action such as a strike, picketing or sickout. If the developer does not make the required payments within the 120-day period, it is subject to a fine of $1,000 per week (or portion), with a maximum fine of $75,000.

Opting In

Developers of buildings with 300 or more rental dwelling units not located in an enhanced affordability area have the option of electing to comply with the wage requirements and receiving the enhanced 35-year exemption. These developers are required to pay an average wage of $45 per hour regardless of where actually located.

Multi-Phase or Multi-Building Projects

Sites containing more than one building or being constructed in multiple phases are eligible for benefits under the new 421-a Program provided that the project as a whole meets the affordability requirements.

Application Process and Filing Fee

Unlike the old 421-a Program, which had a two-step application process, the new 421-a Program provides that a single application is filed within one year after the completion of construction of the building. The legislation authorizes HPD to establish a filing fee of $3,000 per unit and prohibits HPD from turning down an application for failure to meet the minimum average wage requirement.


1 This discussion does not include cooperatives and condominiums that may be eligible for benefits under certain limited circumstances.

2 The current AMI for the New York Metropolitan Area is $90,600 for a family of four.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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