Who pays a second-home tax on an apartment bought by someone who plans to live in it every day? Under New York's new non-primary residence surcharge, the answer depends less on the buyer than on the seller's status on a date that passed before the law existed, and on whether the building is a condo or a co-op. On the Upper East Side, where a large share of the housing stock is co-ops, that second question matters most.

The surcharge was enacted as Part HH of the 2026–27 state revenue budget bill and signed as Chapter 59 on May 28, 2026. It applies starting July 1, 2026, and is scheduled to repeal on June 30, 2031. Whether a home counts as a primary residence is judged as of January 5, the taxable status date. For the current tax year, that means January 5, 2026, more than four months before the governor signed the bill.

The liability is set by the seller's January, not the buyer's plans

Picture a sale closing this fall. The seller used the apartment as a second home on January 5. The buyer is moving in full time. Holland & Knight's Stuart Saft pointed out in a July 20 client alert that DOF's rules set out no proration, no transfer of liability and no closing protocol for this case, so a good-faith buyer can end up with a liability they had nothing to do with.

The city was asked to fix this and chose not to. According to Rosenberg & Estis, DOF rejected an innocent-purchaser safe harbor when it finalized the rules. The surcharge, penalties and interest are a lien against the property, and DOF's position is that buyers and sellers should split the risk in their own transaction documents.

Time makes this worse. Saft notes that DOF has six years after a closing to audit, with subpoena power, and that unpaid amounts accrue interest at 18 percent a year. A primary-residence certification made in good faith at closing can still be reopened years later.

The co-op form spreads one unit's bill across the building

The statute bills condos and co-ops in different ways. That difference is why the issue weighs more heavily on the Upper East Side than on condo-heavy downtown neighborhoods.

In a condo, the exposure stays with the unit. In a co-op, the total of every liable unit's surcharge lands on the building's tax bill. As Brick Underground reported in July, if a shareholder doesn't pay, the whole co-op could face a lien and trouble with its financing. Saft describes the board's two options if a shareholder refuses to pay. It can cover the charge from reserves that belong to all shareholders, or it can leave the charge unpaid on the building's account, where interest compounds at 18 percent while the board pursues the shareholder.

DOF also declined to give co-ops any collection powers beyond what their proprietary leases and bylaws already provide. It suggested that boards consider amending those leases instead.

The Upper East Side already has a test case. The corporation that owns the Montclair, the co-op at East 75th Street and Madison Avenue, sued along with several owners to overturn the tax. Randy Mastro filed the suit, and the Real Estate Board of New York is funding it. According to The Real Deal, the suit argues that boards must track down shareholders who sold and moved out between January 5 and May 28, and that boards never had a chance to amend their leases before those shareholders left:

"Thus, as a practical matter, the PAT Tax requires a co-op board to collect money from shareholders to satisfy someone else's tax liability."

That line describes a former shareholder's liability being paid by the people still in the building. Anyone buying shares today becomes one of those people.

What is showing up in contracts and board packages

Nothing is standard yet. Lawyers' guidance from July through October points to a handful of tools now appearing in Upper East Side co-op deals:

1. Allocation forms at closing. Smith, Gambrell & Russell says it has drafted primary-residence information forms and closing packets that split surcharge liability between buyer and seller. It advises boards to add allocation and security requirements to transfer applications, including for assessments that come out of later audits.
2. Representations, indemnities and escrows in the contract of sale. Rosenberg & Estis lists all three as items for due diligence on homes that may be covered. Saft doubts escrows will work in practice and asks who would agree to hold what could be hundreds of thousands of dollars for six years.
3. Seller indemnification signed with the board. Saft suggests boards require an indemnification agreement and a submission to jurisdiction on every sale, so departing shareholders stay accountable through the audit window.
4. Year-long sublets. A bona fide one-year lease to a tenant who uses the unit as a primary residence can qualify for the exemption, and Brick Underground expects boards to see more sublet requests. Attorneys report seeing leases with riders stating that the unit is the tenant's primary residence.

Amending the proprietary lease is the most complete fix and also the hardest. William McCracken of Moritt Hock & Hamroff told The Real Deal that getting the required supermajority is difficult. Saft warned that amendments could push disputes into litigation. Public reporting has not yet named an Upper East Side board that has adopted a new pied-à-terre ban or new application questions. The tools above come mostly from counsel's templates, not from building rules that have been announced.

For a buyer, this means a co-op's readiness has become part of what is being bought. A board with a collection procedure, closing forms and a clear position on sublets carries less unpriced risk than one that hasn't addressed the issue.

The current valuation method runs out in July 2028

The risk is also unevenly distributed in time. For fiscal years 2026–27 and 2027–28, co-op and condo units are covered at a DOF value of $1 million or more. DOF says that figure is generally comparable to a $5 million single-family home. Rates for those units are 4 percent at $1 million to $3 million, 5.25 percent above $3 million through $5 million, and 6.5 percent above $5 million. One- to three-family homes are charged 0.8 to 1.3 percent on a separate $5 million scale. The Real Deal reported that city notices showed Wilbur Ross and Hilary Geary Ross owing roughly $83,000 and Steve Wynn $183,000. Those three plaintiffs have filed their own constitutional challenge.

Starting July 1, 2028, condos and co-ops switch to values based on comparable condo and co-op sales. They move to the same $5 million threshold and the same 0.8, 1.05 and 1.3 percent schedule as single-family homes. Under the current method, a co-op unit's value is tied to a share of the building's assessed value. In 2028, it will be tied to what similar apartments sell for. Any check of whether a co-op unit is above or below the line today only holds for about two tax years.

What the East Side numbers show, and what they don't

Brown Harris Stevens' third-quarter 2026 report covers 59th to 96th Streets, Fifth Avenue to the East River. It puts the average prewar co-op price per room at $397,296, down from $447,431 a year earlier. Postwar co-ops rose to $307,078 from $287,679, and condos averaged $1,586 per square foot, up 3 percent. These figures cover the quarter the surcharge took effect, but they don't isolate its effect. No source reviewed links any Upper East Side price change to the tax.

The broker commentary points in one direction. In Q3 coverage by Brick Underground, Nicole Hay, an agent at Compass, said the tax is "fueling a shift toward condos." She added that co-op boards are wary of its financial and administrative complications. That is an observation from the field, not a measurement.

New condo supply on the Upper East Side is limited and is being absorbed quickly. At 1122 Madison Avenue, 24 of 26 residences were in contract as of The Real Deal's August 10 report, with pending deals averaging about $5,400 per square foot at asking. The Strathmore at 400 East 84th Street was one of three projects behind the near-doubling of sponsor sales downtown and on the East Side in Q3. Manhattan-wide, sponsor listings fell 22 percent to 564 in Q3 2026, their lowest level since the fourth quarter of 2012. If second-home buyers do move toward condos, they are competing for a small pool.

Where things stand on October 4

In O'Brien v. City of New York, a Staten Island judge ordered on September 29 that DOF redo its rollout. The city appealed, and Holland & Knight's October 2 update says the appeal stayed that order. The exemption application deadline is still October 6, 2026, according to the DOF surcharge page. Surcharges will appear on the property tax bill due January 1, 2027. Mayor Zohran Mamdani said the city will defend the law alongside Albany. The Montclair and Wynn/Ross suits, which challenge the statute itself, are still pending.

Frequently Asked Questions

Does a buyer who will live in the apartment full time owe the surcharge? A primary resident on January 5 is excluded, but the current year's status was fixed by whoever held the unit on January 5, 2026. Because DOF declined to create a purchaser safe harbor, any exposure from a seller's status gets handled in the contract of sale.

Can renting out the unit avoid the surcharge? A lease of at least one year at arm's length to a natural-person tenant who uses the unit as a primary residence is covered by the exclusion. Saft cautions that DOF judges whether a lease is arm's length, and that leases to family members may draw scrutiny. A co-op's sublet policy still applies.

Is a DOF letter the same as a bill? No. DOF says a letter means its records couldn't confirm primary residence. Owners who get one can apply for an exemption.

This post is market commentary, not tax or legal advice, and the rules may change as the courts rule. If you are in contract on an Upper East Side co-op, or weighing a co-op against a condo as a second home, Tony Sargent can help you review a building's board readiness, contract terms and sublet posture with your attorney before you commit. Schedule a Confidential Consultation.