The Pied-à-terre Tax Surcharge and The Proprietary Lease

Legal Alert

August 13, 2026

Our Cooperative Condominium Practice Group has previously posted about the Pied-à-terre Tax Surcharge (“PAT”) and offered guidance for cooperatives to proactively confirm shareholders’ residency and to allocate responsibility for reimbursement of the cooperative for any PAT. (“The Pied-à-terre Tax Surcharge: What Steps Must My Cooperative Take Now?” – July 29, 2026). We also have prepared template documents both to collect primary residence information and for closing packets to allocate the PAT between purchaser and seller.

Another issue plaguing cooperatives with PAT is whether cooperatives must amend their proprietary leases in order to obtain reimbursement of the cooperative for any PAT imposed on account of a shareholder’s taxable pied-a-terre.

First, amending your proprietary lease can be difficult depending on the size and character of a building and the degree of supermajority vote needed. If such an amendment is proposed and does not pass, it may be asserted that the Board has essentially conceded the amendment is necessary and, having failed, the cooperative may have made collection more difficult. Accordingly, there is hard work and risk involved in the proprietary lease amendment path.

Second, it is not at all clear that it is necessary.

The NYC PAT statute, at New York State Tax Law Section 1354(c) provides that the surcharge is to be added to the shareholder account and “…each such surcharge shall be collected by the cooperative corporation from the tenant-stockholder…” There is, thus, a statutory mandate to support reimbursement from the shareholder to the cooperative.
Moreover, the purpose of the statute was to collect additional revenue from the “wealthy” non-resident, non-income tax paying apartment owners. It is highly unlikely any judge will ignore that fact in the event a cooperative needed to take legal action against a shareholder to collect reimbursement of PAT.
Every proprietary lease includes provisions that, while not directly addressing PAT, provide a basis for collecting it from the shareholder. For example, in a typical proprietary lease, you will find an indemnity clause, a good faith cooperation clause, an obligation to comply with all governmental authorities or laws clause, a reimbursement of expenses clause, and/or an objectionable conduct clause.
The typical cooperative bylaws also contain a provision granting the cooperative a lien on shares for any debts or obligations owed by the shareholder to the cooperative.

We see little or no risk that Boards will be unable to collect reimbursement pursuant to these statutory and governing document provisions. A proprietary lease amendment which specifically addresses PAT, and any other potential taxes/surcharges imposed upon cooperatives in the future, would be helpful, but it is not certain that it is necessary. If a Board wishes to amend its lease and believes it has the requisite shareholder support to do so, we will provide a proposed amendment and guide you through the vote. If a Board is concerned about whether such an amendment will pass, we will review the governing documents and assist the Board in ascertaining the risks involved.

You may contact any member of Smith Gambrell’s cooperative and condominium practice group with questions or for assistance.