The Appellate Division, Second Department, affirming a New York City Tax Commission decision, has held that a not-for-profit organization with a 99-year lease on real property is not eligible for the property tax exemption available to non-profits under Real Property Tax Law (“RPTL”) § 420-a. Matter of Al-Ber, Inc. v. New York City Dep’t of Finance, No. 2009- 11875 (2d Dep’t, Jan. 25, 2011).

Petitioner Al-Ber, Inc. is a not-for-profit organization exempt from federal income taxation that operates an Islamic school on real property located in New York City. In 2001, Petitioner entered into a 99-year lease for the property, under which it was responsible for all real estate taxes on the property. Petitioner also had an exclusive option to purchase the property through 2016.

In 2005, Petitioner applied to the City Department of Finance for a real estate tax exemption available under RPTL § 420-a.

Under that provision: “Real property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, [or] educational . . . purposes . . . and used exclusively for carrying out thereupon one or more of such purposes . . . shall be exempt from taxation. . . .” (Emphasis added.) Petitioner claimed that it was entitled to the exemption by reason of the 99-year lease and the exclusive option to purchase the property, the exercise of which would give it legal title to the property. The Department, and later the New York City Tax Commission, denied the exemption.

On appeal, the Appellate Division first noted that tax exemptions are strictly construed against taxpayers, and that a taxpayer must demonstrate that its interpretation of the statute is “‘the only reasonable construction.’” (Citation omitted.) The Court held that the petitioner did not prove it was entitled to the exemption since it did not own the real property, as required under the law, notwithstanding the length of the lease and that the petitioner was required to bear the tax.

The court’s ruling, while unsurprising, is a reminder that for a non-profit organization to qualify for exemption from property tax, it must hold legal title to the property. While a 99-year lease with an option to purchase may be tantamount to ownership, it does not satisfy the unambiguous ownership requirement under RPTL § 420-a.