Judge Blocks Parts of NYC Pied-à-Terre Tax Rollout Amid Homeowner Lawsuit

A Staten Island judge temporarily blocked parts of New York City’s rollout of its new pied-à-terre surcharge after three homeowners argued that the city failed to follow state law before warning thousands of residents that their properties could be taxed.

Justice Wayne Ozzi of the New York State Supreme Court in Richmond County issued a temporary restraining order Monday directing the city to remove a supplemental property roll from public access and limiting further action based on notices sent to homeowners. The ruling came three days after Rachel O’Brien, Carmine Morano and Simon Hedley sued the city, Mayor Zohran Mamdani and finance officials over how the surcharge was being implemented.

The challenge does not seek to invalidate the tax itself. The homeowners argue that the Department of Finance used an unlawful process to identify properties that might be subject to the surcharge and required residents to prove they were exempt before the agency made the initial determination required by state law.

The surcharge, enacted as part of New York’s state budget and signed into law in May, applies to certain high-value New York City homes that are not used as primary residences. During the rollout, the Finance Department published a supplemental roll containing information for more than 900,000 residential properties and sent about 17,000 owners notices saying their homes might be subject to the tax.

At the center of the lawsuit is Section 1352 of the New York Tax Law. The statute directs the Finance Department to first determine, using information available to the agency, that a covered property is not a primary residence. The law then allows the owner to receive notice and submit information showing that the property qualifies for an exemption.

O’Brien, Morano and Hedley claim the city reversed that process by sending notices before making individualized findings about whether their homes were primary residences. Their lawsuit was filed as an Article 78 proceeding, a form of New York court review used to challenge actions by state and local agencies, including claims that an agency exceeded its authority, failed to follow required procedures or acted without a reasonable basis.

Ozzi said from the bench that the notices created irreparable harm because they did not explain why recipients had been identified as potentially subject to the surcharge while warning that homeowners who failed to seek an exemption could be taxed. His order barred the city from taking further action based on the notices without first making the determination called for under the statute.

Government agencies are generally required to follow the authority and procedures established by the laws they administer. Courts reviewing agency conduct can invalidate actions that go beyond those limits or fail to follow duties imposed by statute. The homeowners argue that the initial responsibility for determining whether a property was a primary residence belonged to the Finance Department and could not simply be shifted to property owners.

The lawsuit also challenges the city’s publication of the supplemental roll. The homeowners argue that state law did not require or authorize a public list containing names, addresses and property values for more than 900,000 residences, including properties that were not ultimately subject to the surcharge.

Hedley received one of the notices even though he says his Manhattan home has been his primary and only residence for more than a decade. After receiving the letter, he submitted a tax return seeking an exemption and was notified Monday morning that his property would not be subject to the surcharge.

New York City moved to appeal shortly after Ozzi issued the order. Mamdani’s administration says the appeal automatically stays the ruling and has maintained that implementation of the surcharge will continue. The mayor’s office said it disagreed with the decision and remained confident that the city could administer the tax fairly.

Attorneys for the homeowners dispute that interpretation. In an August 11 filing, Randy Mastro argued that New York law does not automatically suspend portions of a court order that prohibit the government from taking future action, leaving the immediate reach of Ozzi’s restrictions contested between the parties.

The parties are scheduled to return before Ozzi on August 31.