NEW YORK CITY DEPARTMENT OF FINANCE HAS EXTENDED THE FILING DEADLINE TO OCTOBER 6, 2026
New York City’s new pied-à-terre tax has received considerable attention from owners of high-value residences. The law, however, also creates important considerations for residential leases.
Under the pied-à-terre tax, certain high-value New York City residential properties are subject to an annual surcharge if they do not serve as a primary residence. Our prior alert on the tax is available HERE. Importantly, the property does not have to be the owner’s primary residence to avoid the surcharge. A property may also qualify as a primary residence when it is the primary residence of a qualifying tenant or subtenant.
As a result, whether property is actually being used as a tenant’s primary residence, and whether the owner can prove that fact to the New York City Department of Finance (“DOF”) can now have significant financial consequences. This client alert will address the residential leasing considerations resulting from the pied-à-terre tax.
The Lease Is Not Enough
Showing that an individual lives in an apartment is only part of the analysis. The owner must also establish that the individual is a qualifying tenant or subtenant.
For a tenant with a written lease, the owner must generally provide:
- An unexpired lease or sublease entered into through an arm’s-length transaction; and
- At least one additional rental document.
The regulations define “additional rental documents” to include:
- A utility bill in the tenant’s name issued within the preceding year;
- An unexpired renter’s insurance policy to which the tenant is a party; or
- Proof of rental payments to the owner.
The regulations also require the lease to be an arm’s-length transaction. This generally means that the lease must be entered into in good faith, for valuable consideration reflecting fair-market rental value, between informed and willing parties.
What if There Is No Written Lease?
The final regulations specifically address month-to-month tenancies.
For a month-to-month tenant or subtenant, the owner may establish the tenancy through:
- An affidavit from both the property owner and tenant or subtenant confirming that the tenancy was entered into through an arm’s-length transaction; and
- Two or more additional rental documents.
Those requirements are separate from the evidence necessary to establish that the tenant actually uses the apartment as a primary residence.
Proving a Tenant’s Primary Residence
DOF’s final regulations establish specific requirements for proving that a tenant or subtenant uses an apartment as a primary residence.
Primary residency can be established through the tenant’s most recently filed state or federal personal income tax return showing the apartment as the tenant’s permanent home address.
Alternatively, primary residency can be established through two or more of the following:
- A driver’s license or other qualifying government-issued identification showing the apartment as the tenant’s residence;
- A New York City voter identification card; or
- Other proof of primary residency acceptable to DOF, including evidence of occupancy for the 12-month period preceding the applicable taxable status date.
Neither a driver’s license nor a voter identification card is individually required by the regulations. The regulations expressly permit DOF to consider other evidence of primary residency. This is particularly important for tenants who may not have changed their driver’s license, do not vote in New York City, or cannot readily provide a tax return.
The regulations further provide that DOF determines whether the property is being used as a primary residence as of the applicable taxable status date. Accordingly, evidence demonstrating actual occupancy over time may become particularly important.
Owners May Need Information They Historically Did Not Collect
One of the practical consequences of the new law is that owners of affected properties may now need documentation from tenants that they historically had little reason to request.
DOF acknowledged this issue when adopting its final regulations. Commenters expressed concern that owners might not be able to obtain sufficient documentation from tenants or subtenants. DOF’s response was effectively that the issue must be addressed between the private parties and would not be resolved through the regulations.
The terms of a residential lease, therefore, became increasingly important.
An owner who waits until receiving a DOF notice to request primary-residence documentation could discover that the tenant is unwilling or unable to provide it and that the lease contains no provision requiring the tenant to cooperate.
Residential Leases Should Be Revisited
For properties potentially subject to the surcharge, owners should consider adding provisions to new leases and renewals addressing the pied-à-terre tax.
Among other things, a lease could:
- Include a representation as to whether the apartment will constitute the tenant’s primary residence;
- Require the tenant to notify the owner if the apartment ceases to be the tenant’s primary residence;
- Require the tenant to provide reasonable documentation establishing primary residency upon request;
- Require cooperation with a DOF notice, appeal, audit or other proceeding;
- Establish a period of time for responding to an owner’s documentation request;
- Require the tenant to maintain and provide appropriate evidence of occupancy, such as utility bills, renter’s insurance; and
- Address the consequences of a material misrepresentation by the tenant concerning primary residency.
Consider the Issue Before Signing the Lease
The pied-à-terre tax may also change the economics of leasing certain high-value apartments.
Before entering into a lease, an owner of a potentially covered property should consider whether the proposed tenant intends to use the apartment as a primary residence and whether the owner will have sufficient documentation to establish that fact.
For example, an owner may want to know before signing a lease whether the tenant will be willing and able to provide documentation establishing primary residency. The answer may be particularly important where a tenant intends to maintain another residence, frequently travels, uses the apartment only during the workweek, or otherwise has facts that could make primary residency less clear.
A lease saying that an apartment is the tenant’s “primary residence” does not satisfy the obligations under the law. The owner ultimately needs to be able to demonstrate the underlying facts to DOF.
Documentation Should Be Collected Before It Is Needed
Owners should also consider establishing a procedure for maintaining primary-residency documentation during the tenancy rather than attempting to recreate the record after receiving a DOF notice.
For example, depending upon the circumstances, the owner might maintain:
- The current lease and all renewals;
- Records demonstrating payment of rent;
- A current utility bill;
- Evidence of renter’s insurance;
- Additional Rental Documents required by the DOF; and
- Other documentation demonstrating the tenant’s actual occupancy of the apartment.
This may be particularly important because DOF’s regulations permit consideration of evidence of occupancy during the 12-month period preceding the applicable taxable status date.
The Broader Leasing Consideration
Historically, whether a tenant treated an apartment as a primary residence was often principally a concern in the rent-regulation context. The pied-à-terre tax creates an additional reason for owners of certain market-rate apartments to focus on the issue.
For a high-value apartment, a tenant’s use of the property can now directly affect the owner’s potential tax liability.
Accordingly, owners negotiating residential leases of high value properties should consider the pied-à-terre tax before the lease is signed—not after a DOF notice arrives.
The law remains new, and DOF’s procedures and interpretation of acceptable alternative evidence will continue to develop. Owners with properties potentially subject to the surcharge should review their existing lease forms, renewal forms and tenant-documentation procedures in light of these new requirements.
The foregoing is not intended to be comprehensive nor constitute legal advice. If you would like to discuss your specific circumstances or would like more information, feel free to contact us at (212) 625-8505.