Key Points

  • The Second Department held that a property owner may challenge the Department of Finance's denial of a clerical-error reclassification application in a CPLR article 78 proceeding, rejecting the city's contrary argument.
  • The court said that to the extent the First Department's decision in Matter of 3061-63 Third Ave., LLC v Soliman (223 AD3d 548) is inconsistent with its conclusion, it declines to follow it.
  • Under RPTL 1802(1)(d)(i), vacant land zoned residential and located in New York City outside Manhattan is tax class one regardless of any commercial overlay, and the city's failure to classify such land that way was an error of law.
  • In 106 Astoria Blvd., the Queens judgment annulling four denials and ordering reclassification to tax class one was affirmed with costs.
  • In WA High Inv., the Kings County judgment dismissing the petition was reversed, and the owner's application to reclassify its Brooklyn lot to tax class one for fiscal years 2017 to 2019 was granted.

A New York appeals court ruled on Oct. 7 that owners of vacant, residentially zoned lots in New York City may go to court under CPLR article 78 to force the city's Department of Finance to correct a lot wrongly placed in a higher tax class, and it said it would not follow a decision of a sister appellate court to the extent that ruling pointed the other way.

The Appellate Division, Second Department, issued the rulings in two unsigned decisions, one involving four lots in Queens and the other a lot in Brooklyn. The property owners won both. A four-judge panel of Justices Mark C. Dillon, Valerie Brathwaite Nelson, Laurence L. Love and James P. McCormack joined each decision without separate writings, affirming a Queens judgment in the owner's favor and reversing a Brooklyn judgment that had thrown out an owner's case.

The decisions reject the city's position that these classification disputes could not be heard in an article 78 proceeding. In the Brooklyn case, the Department of Finance had, in effect, said the owner's challenge should instead be pursued in a proceeding under article 7 of the Real Property Tax Law. The panel also restated that vacant residential land outside Manhattan belongs in tax class one even if a commercial zoning overlay applies to it.

In the Queens case, Matter of 106 Astoria Blvd., LLC v. Niblack, the panel addressed the conflict directly. After citing earlier rulings, the court wrote: "To the extent that the decision of the Appellate Division, First Department, in Matter of 3061-63 Third Ave., LLC v Soliman"; "is inconsistent with our conclusion, we decline to follow it." The decision did not describe the First Department case beyond its citation.

Both disputes turned on the city's clerical-error correction process. Section 11-206 of the city's Administrative Code provides that "[t]he commissioner of finance may correct any assessment or tax which is erroneous due to a clerical error or to an error of description" in the city's assessment records. Under the version of the Department of Finance's rules in effect at the time, an "[i]naccurate building class that affected assessed value" counted as such an error, and owners could apply to have it corrected within six years.

The substantive question was governed by the Real Property Tax Law, which places property in New York City into one of four classes. Tax class one includes "all vacant land located within a special assessing unit which is a city" that is zoned residential or sits immediately next to qualifying residential property, "other than such land in the borough of Manhattan." Class four is a catch-all covering "all other real property which is not designated class one, class two, or class three."

From that language, the panel wrote in the Queens case, it followed that "vacant land that is zoned residential and located within New York City but outside of the borough of Manhattan is properly classified as tax class one, regardless of a commercial overlay."

The Queens owner, 106 Astoria Blvd., LLC, asked the Department of Finance in June 2023 to move four vacant lots from tax class four to tax class one. The department denied all four requests in determinations dated Aug. 10, 2023, finding the lots were properly classified. The owner then sued the department's commissioner and the city, and Queens Supreme Court Justice Kevin J. Kerrigan annulled the denials in a June 27, 2024, judgment and ordered the lots reclassified.

On appeal, the city argued that the trial court should not have reached the merits in an article 78 proceeding. The panel disagreed. The lots were zoned R6B residential, and the court held that the city "should have classified the properties as tax class one, regardless of any commercial overlay, and their failure to do so was an error of law."

The Brooklyn case, Matter of WA High Inv., LLC v. Niblack, involved a lot that was vacant during fiscal years 2017 through 2019. In December 2021, the owner filed a clerical-error application asking the department to move the lot from tax class four, building class V1, to tax class one, building class V0, for those three years.

The department denied the application on June 6, 2023, on the grounds that the issue was "not a clerical error or an error in description of the property," and, as the appeals court described it, in effect said the owner should bring an RPTL article 7 proceeding instead. Kings County Supreme Court Justice Francois A. Rivera denied the owner's petition in a judgment dated Jan. 4, 2024.

The appellate panel reversed. "Contrary to the City respondents' contention, the challenge raised by the petitioner may be raised in a CPLR article 78 proceeding," the court wrote, citing three prior decisions. Because the lot was zoned R7A residential during the years at issue, the panel held, the department should have placed it in tax class one, "regardless of any commercial overlay."

In reaching the merits, the court applied the standard for reviewing agency decisions made without a formal hearing, asking whether a determination "was affected by an error of law, or was arbitrary and capricious or an abuse of discretion." In the Queens case it found an error of law; in the Brooklyn case it reversed on the law.

The city was represented on both appeals by the office of Corporation Counsel Steven Banks. Scott Goldberg of Goldberg & Bokor LLP represented both property owners.

The Queens judgment was affirmed with costs, leaving in place Justice Kerrigan's order that the four lots be reassessed and reclassified as tax class one. In the Brooklyn case, the panel reversed with costs, granted the petition itself, annulled the June 2023 determination and granted the owner's application to reclassify the lot to tax class one, building class V0, for fiscal years 2017 to 2019. Both decisions are marked as uncorrected and subject to revision before publication in the Official Reports.