Electricity fees are determined in one of three ways: direct metering, sub-metering or flat fee per square foot (typically $3.25/sf/yr). Base asking rents do not include charges for electricity (unless referred to as “full service”). With direct metering, the tenant receives the electric bill from Con Edison and pays it directly. With sub metering, the landlord pays the bill and adds an administrative fee of 7–25%.
Commercial Rent Tax
This tax is charged to tenants who occupy or use a property for commercial activity in Manhattan, south of 96th Street. You are subject to the Commercial Rent Tax if you rent space in this area for any trade, business, profession, or commercial activity, and:
- it is located in the borough of Manhattan, south of the center line of 96th Street;
- the annual or annualized gross rent paid is at least $250,000; and
you do not meet any other exemption criteria, such as short rental periods, residential subtenants, use for theatrical productions, and not-for-profit status.
Note: Tenants with annual taxable rents between $250,000 and $300,000 are eligible for a sliding-scale credit that partially offsets the tax. A “tenant” is someone who pays rent as a lessee, sub-lessee, licensee, or concessionaire. Tenant-shareholders in co-ops are included. You must also pay the Commercial Rent Tax if you:
- Occupy space in buildings owned by spouses or parents;
- Occupy space in buildings you own jointly with another person who is not your spouse or domestic partner;
- Occupy space in buildings owned by corporations where you are an officer or shareholder;
- Are a corporation, occupying space in a building that is owned by a subsidiary corporation or by a parent corporation; and
- Are a corporation, occupying a space in a building owned by an officer or stockholder of the corporation.
The tax rate is 6% of the base rent. All taxpayers are granted a 35% base rent reduction, which reduces the effective tax rate to 3.9%. In addition, you are allowed a tax credit if your annualized base rent before the 35% rent reduction is between $250,000 and $300,000. Be sure to review the instructions for Commercial Rent Tax for information about other types of deductions from base rent.
Calculating Base Rent
Rent paid by a tenant for each location
– Rent received or due from a subtenant
= Base Rent*
*When the base rent is for less than one year (or for less than three months on a quarterly return), you must annualize it over the entire period of the return. The annualized base rent is used to determine the appropriate tax rate.
Calculating Your Tax
Use quarterly and annual Commercial Rent Tax returns to calculate the exact tax that you owe:
- Calculate the base rent that is subject to the tax.
- Subtract all permissible deductions, including those allowed under the Commercial Revitalization Program from the gross rent paid.
- Apply the rent reduction percentage (35%).
- If the property was not rented for every month of the return, annualize the amount from Step #1 over the entire period of the return. You can do this by dividing the base rent by the number of months rented, then multiplying by either 3 (quarterly return) or 12 (annual return).
- Determine the effective tax rate, 0% or 6%, using the amount from Step #1 (or the prorated amount for partial-period rentals from Step #2) and the chart on page 2 of the return.
- Calculate the tax liability by applying the tax rate from Step #3 to the base rent amount from Step #1.
If you rented more than one property in the part of Manhattan that is covered by the tax, repeat these four steps for each location to determine your total tax liability.
If you rent more than one location in the same property, aggregate all locations to determine the base rent.
Exemptions From This Tax
You are not subject to the Commercial Rent Tax if:
- Your annualized base rent is less than $250,000 before applying the 35% rent reduction and the NYC Commercial Revitalization Program special reduction. However, you are required to file a tax return if your annual gross rent paid is more than $200,000.
- You are renting premises for 14 days or less during the tax year.
- You are a Tenant who uses at least 75 percent of the floor space to rent to others for residential purposes. This does not include operators of hotels.
- You are renting property for certain theatrical productions. The exemption will be for the first 52 weeks after the production begins.
- You are a governmental body or a nonprofit religious, charitable, or educational organization. Other types of nonprofit organizations will be exempt as long as the property is not used for commercial purposes and they receive a written tax exemption from Finance.
- You are located in the “World Trade Center Area.” Refer to the CR-A instructions for a detailed definition of this area’s boundaries
- You occupy a property that is located in the Commercial Revitalization Program abatement zone and is being used for retail sales purposes.
Forms and Reports
Every tenant must file an annual return on or before June 20 covering the prior year, from June 1 to May 31, unless both of the following are true:
|(a)||The annual gross rent paid for any taxable premises (before deductions and reductions) is $200,000 or less; and|
|(b)||The rent received from any subtenant of the premises is $200,000 or less|
Every tenant who is subject to tax for a period must also file a quarterly return.
Title 11, Chapter 7, Administrative Code
Enabling Act: Chapter 257 of the Laws of 1966
Frequently Asked Questions
What records related to Commercial Rent Tax should a taxpayer keep?
Every landlord of taxable property and every tenant of taxable property must keep the following records:
- Identification of each tenant or sub-tenant
- The rent required to be paid
- The rent paid and received
- The location of each premises
- The period of each occupancy
- All leases or agreements that fix the rents required to be paid and/or the rights of the tenants
Records must be available for examination upon request by Finance. Leases and agreements stating rents required to be paid and/or the rights of a tenant should be kept for a period of three years after the expiration of the lease. Other records must also be kept for a three-year period after the annual return is filed (unless written permission is granted to destroy them before that time).
If a business ends during the year, what returns must I file?
Your tax is due within twenty days after your business ends. The amount of tax due is measured by your base rent, including escalations and other charges normally payable to the landlord for the part of the tax year that you were doing business. If, under your lease, you are required to continue to pay rent, or if, for any reason, you continue to pay rent for the premises after business ends, you still must file the normally required returns.
For more information, see:
- New York Commercial Taxes
- New York Commercial Rent – Business Forms
- New York Property Construction However, there is a tax credit if annual rent is less than $190k, and in computing the amount of the tax, there is a 35% reduction. If annual rent is less than $75,000.00, no return is required. See: . The CRT will eventually be phased out.(The preceding information was provided by the City of New York and no claim is made to its content.)
Proof of Insurance
All landlords require proof of insurance (comprehensive general liability business policy) which provides coverage in the event of property damage or personal injury on the premises. The amount required can vary between $1,000,000 and $3,000,000. While it’s customary for the landlord to be named as an additional insured on the policy, the landlord should not be named as payee in the event of loss. Your insurance broker and attorney should review those portions of the lease that deal with property damage, personal injury, and condemnation rights.
The security deposit protects the landlord against damage to the premises or the failure to pay rent, and is usually 2 to 4 months’ rent (depending upon the financial condition of the tenant). In some cases, a standby Letter of Credit can be used in lieu of a cash deposit. Banks charge 2-10% annually for this service, depending on your relationship with the bank. With sole proprietorships or closely held corporations, a personal guaranty is typically also required. There are two kinds of guaranties: full and “good guy.” With a “good guy” guarantee, the guarantor remains liable only so long as the tenant remains in possession of the space. Once the tenant leaves, the guarantor’s liability terminates.
Annual increases in operating expenses and employee wages (Porter’s Wages) are sometimes passed through to the tenant on a proportional basis. Most landlords today, however, use the Consumer Price Index or a fixed percentage (3% or 4%) to raise the annual base rent to reflect increases in operating expenses. In addition (but not part of the increased base rent), are real estate tax increases over the base year (which runs from June 30 to July 1 each year).
In New York City, the loss factor varies between 15% to 40%. This means that a 5,000 rentable square foot (rsf) space actually contains 3,250 to 4,250 net square feet. The difference was originallyis designed to account for common areas, elevator shafts, etc. of the building (although some landlords arbitrarily increase the rentable square footage to create the illusion of more space at a lower rental). You should always measure the usable square feet and compare it with what you’re being charged. Be advised that some landlords list fullfloor space larger than the entire footprint of the building—that’s why MANHATTAN OFFICE SPACE ® (an exclusive Tenant Broker) will save you time and money.
Amount of space
The rule of thumb is to allow 150–250rsf per person subject to the limits below (which assume some offices, open space with work stations, and typical amenities):
(a) 20 people, allow at least 3400 rsf (180rsf/person).
(b) 30 people, allow at least 4800 rsf (170rsf/person).
(c) 40 people, allow at least 5800 rsf (160rsf/person).
(d) 50 people, allow at least 8000 rsf (150rsf/person).
A $60/rsf build-out provides a modest office installation with standard floor covering (often refinished hardwood floors or commercial grade carpeting) and typical amenities. Many start-ups and sales-oriented companies choose this option for cost and business environment purposes (i.e., a modular layout with open areas accentuated by working groups and stark offices to keep the sales force on the street)– which can be very effective if done in the right hands. Alternatively, if a more conventional office environment is called for, then begin your cost estimates at $80/rsf. Professional offices are more expensive owing to larger offices, upgraded materials, and more amenities (and can cost $90+/sf). A New Building Installation is typically negotiated into the base rent to include the cost of improvements, which significantly reduces up-front tenant costs and amortizes them over the lease term. If build-out costs are high but the tenancy short, make sure there’s a provision in the lease that allows you to deduct a portion of the rent to offset the tenant improvements (if you intend to pay those expenses yourself).
Free rent and other concessions (e.g., build-out subsidies) are affected by supply and demand. In the current market and especially in Midtown, good space is plentiful and rents have decreased to average $41/sf/yr. Downtown, rents have diminished significantly over the past two years. Also expect 2-4 months free rent with a 5 year lease.