Despite red tape, more buildings discover J-51.

Eligibility requirements for the J-51 program have been liberalized for cooperatives and condominiums that complete work more than three years after their initial closing date. That's good news for owners and managers who can withstand bureaucratic red tape.

Such was the message of a well-attended seminar sponsored by the law firm of Tuchman, Katz, Schwartz, Gelles & Korngold. Representatives of the firm offered an update on the program that for the pat 30 years has given tax relief to owners who have improved their properties. J-51, administered by the Department of Housing Preservation and Development (HPD), was recently renewed with revisions for another six years.

The program, explained Paul J. Korngold, the partner in charge of the firm's J-51 department, allows for a reduction in real estate taxes via tax abatement or tax exemption after certain permissible improvements are made to a co-op, condominium or rental building registered with the New York State Division of Housing and Community Renewal (DHCR). Mitchell Lamas are also eligible where they install a system wide major capital improvement (MCIs). The use of government loans, grants or subsidies to pay for the improvements, however, makes these Mitchell Lama buildings ineligible.

The abatement is delivered, after a certificate of eligibility is granted, in the form of a cash credit to offset real estate taxes. The exemption releases an owner from the obligation to pay taxes on the increase in assessed value that may result from improvements.

Tax credits are computed as 1/12 of the approved reasonable cost annually until 90 percent of approved cost is depleted. For residential conversions from manufacturing use in Manhattan, the total recovery by way of abatement is limited to 50 percent of the approved reasonable cost. If a property qualifies for moderate rehabilitation benefits, the abatement may equal up to 100 percent. A moderate rehabilitation that is governmentally assisted may result in a total abatement equal to 150 percent of the approved reasonable cost with the annual abatement given at the rate of one-eighth of the approved reasonable cost.

The new provisions in the law pertain to work in cooperatives started after Aug. 7, 1992. Changes that apply to co-ops include:

* Work commenced within three years after the first bona-fide sale of stock continues to be eligible without further co-op requirements

* The assessed value at the beginning of work must be less than than $40,000 per unit (actual not transitional) and commercial space can be factored out (The previous test was $30,000 per unit.)

* While during the three years preceding commencement of work the average per (zoning) room sales price must be less than a maximum of $71,000, those buildings with less than 10 percent sold for the prior three years will only have to have an average assessed valuation of less than $40,000 (This was previously, $25,000 for buildings with less than 10 percent sold.)

* Previously, for a co-op or condo that was more than three years beyond its initial closing to be eligible, a system-wide improvement had to be completed. Now, under the new law, any individual improvement approved by HPD is eligible

For rental buildings, the previous law limited eligibility -- under Local Law 41 of 1988 -- to those buildings that were assessed at $30,000 at the time of the commencement of work. The new law raises that cap to $40,000 per dwelling unit.

Processing

Michele Cospito, the firm's J-51 coordinator, offered some tips on processing.

First, she stressed, consideration of the J-51 process should begin prior to the commencement of work.

Contracts for work completed, she said, are vital and they should be detailed -- cost, quantity, allocated costs, etc. Change orders are also important. If the improvement was windows, she said, the contract must state if they are thermally insulated, wire-glass windows, child guards, etc.

"Your J-51 benefits are not based on the actual costs but on HPD's reasonable cost allowances," she said.

You may want to withhold final payment, she said, until you have all supporting documents and never combine payments for work in different buildings, she warned.

Beware of contractors that lower costs in order to lower permit costs, Cospito said.

The most common delay in approving J-51 applications, she said, are "B or C" violations, Department of Building violations and Environmental Control Board violations.

"It's never too early to investigate violations," she said, recommending periodic checks that elevator charges, water and sewer, and real estate taxes are paid up-to-date.

Co-ops and condos, she said, which are more than three years beyond their closing date, must pass the eligibility test and prove their eligibility by either presenting an affidavit from the co-op board president, sales record, an affidavit from an accountant, an offering plan and the attorney general's acceptance letter.

HPD audits approximately 25 percent of all applications, she said.