Court: City Properly Assessed Condominium Units Separately

Written by: Alan Nochumson

With the real estate market once again heating up, condominium conversions are becoming quite common again. What many real estate developers do not account for when they essentially subdivide their property is what happens to the real estate taxes due on account of these now separately assessed condominium units.

Prior to the condominium conversion, the property receives a single assessment as to the property’s fair market value. When a condominium conversion takes place, however, each of the condominium units receive their own real estate tax assessment from the local taxing authority based upon that condominium unit’s fair market value.

When the real estate market collapsed almost a decade ago, many real estate developers who performed condominium conversions could not sell their condominium units and were forced to rent them out while they waited for the market to stabilize. For all intents and purposes, these condominium buildings turned into glorified apartment buildings where most of the occupants leased the condominium units owned by the real estate developer who converted them.

In the process, what many real estate developers experienced is that their real estate taxes cumulatively on the condominium units exceeded the real estate taxes they paid when the building was assessed as a single-fee simple property. In other words, they soon discovered that the parts of their condominium building (i.e., the condominium units) became worth more than its whole from the perspective of a real estate tax assessment.

Last month, in Dockside Associates/Pier 30 L.P. v. City of Philadelphia, 2016 Pa. Commw. Unpub. LEXIS 61 (Jan. 15 2016), the Commonwealth Court, in an unpublished opinion written by Judge Bernard L. McGinley, discussed this dynamic in a 242-unit residential condominium building that had been converted in Philadelphia.

In Dockside, in the early 2000s, a 16-story condominium building was constructed adjacent to the Delaware River.

Due to the real estate market collapse, the property owner was unable to sell most of the condominium units and instead leased them.

After the condominium conversion took place, the City of Philadelphia’s Office of Property Assessment (OPA) assessed a separate market value for each of the residential units. The property owner that developed the property into a condominium building then filed separate real estate tax assessment appeals with the OPA for each of the condominium units it ­continued to lease.

During the real estate tax assessment appeal proceedings, the city retained the services of a certified appraiser who listed a separate value for each of the condominium units using a sales comparison approach and highest-and-best-use of the condominium units. According to the city’s appraiser, the highest-and-best-use of the condominium units was to sell them on the open market.

On the other hand, the property owner retained its own certified appraiser who used a “fractured condominium” model and an income capitalization approach to value the condominium units. According to “The Dictionary of Real Estate Appraisal,” a “fractured condominium” is defined as “a residential condominium development or conversion project in which many units remain unsold; often a distressed property previously offered for sale as individual condominium units where the remaining units are remarketed as rental units and then sold as an apartment project.”

The property owner’s real estate tax assessment appeal as to its income-producing condominium units was first denied by the City of Philadelphia’s Board of Revision of Taxes.

After that happened, the property owner then appealed the administrative ruling to the Philadelphia Court of Common Pleas.

The trial court judge then heard argument and testimony over the course of four days and upheld the assessed fair market values of the residential condominium units using the sales comparison approach as provided by the city.

Afterward, the property owner appealed the trial court’s ruling to the Commonwealth Court.

In a rather lengthy unpublished memorandum opinion issued by McGinley, the Commonwealth Court expressed its rationale for denying the appeal.

In the memorandum opinion, McGinley set forth the divergent methods by which the parties attempted to calculate the appraised value of the condominium units in Dockside.

According to the city, the OPA assesses condominium units based upon a sales comparison approach. Under the sales comparison approach, the OPA relies upon comparable sales in determining the market values of individual condominium units. In explaining the sales comparison approach, the city noted that market value is deemed as “the price which the purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses to which the property is adapted and might in reason be applied.”

In performing the appraisal in Dockside, the city utilized sales as well as resale comparisons in several similar local condominium projects along the Philadelphia waterfront.

The city emphasized that a condominium unit is considered a separate property with a separate tax identification number, and regardless of how many condominium units a single owner possesses, each is assessed with its own fair market value.

In doing so, the city pointed to Section 3105 of Pennsylvania’s Uniform Condominium Act (UCA), which states, in pertinent part, “each unit together with its common element interest … shall be separately taxed and assessed.”

In contrast, the property owner argued that the condominium building should be deemed a fractured condominium, as the property owner would be “stuck” with the unsold condominium units for as long as 20 years before all of them would be sold on the open market. Using an income capitalization approach, the property owner’s appraiser looked at the gross income attributed to the condominium building and deducted appropriate expenses to arrive at the net operating income, finding the capitalization rate and dividing income by said rate to yield an indication market value. The property owner’s appraiser valued the condominium units owned by the property owner as one property, a fractured condominium, with the value indicated by sales and the contribution that each sale made to the operating income of the entire ­condominium building.

The Commonwealth Court reasoned that the trial court did not abuse its discretion by agreeing to follow the sales comparison approach utilized by the city when appraising the fair market value of the individual condominium units for real estate tax assessment purposes.

In doing so, the Commonwealth Court glowingly cited to the trial court’s conclusion that the property owner “offered no real authority regarding the appropriateness of a ‘fractured condominium’ and income capitalization approach as opposed to Philadelphia’s method, utilizing a sales comparison approach.”

In particular, the court emphasized that Section 3105 of the UCA mandates a residential (condominium) unit, regardless of ownership, to be treated separately from all other units in the condominium project.

The Commonwealth Court noted that at least 14 other states have enacted the UCA and that state courts in Arizona, Maine and Rhode Island have addressed the UCA’s tax provision set forth in Section 3105 and each has interpreted that provision to require a residential (condominium) unit, regardless of ownership, to be treated separately from all other units in the condominium project.

Thus, while the property owner in Dockside may have believed and asserted that its ownership of the condominium units was within a fractured condominium project, which consequentially depressed the value of each individual condominium unit within that project, the Commonwealth Court emphasized that the property owner did not provide any authority as to why courts in Pennsylvania should ignore the UCA, which defines each residential unit as a separate parcel to be taxed and assessed separately.


The Commonwealth Court’s ruling in Dockside is an unreported opinion. In other words, in real estate tax assessment appeals, the city may only cite it for its persuasive value, but not as binding precedent.

With that being said, property owners in Philadelphia will likely not be too happy that such a written opinion now exists, despite its nonbinding effect, at this present time. Whether the city will be allowed to continue to collect more real estate taxes by assessing the parts of a condominium building (i.e., the individual condominium units) more than if the income-producing condominium building was a fee-simple apartment building will depend upon how courts in Pennsylvania will handle these sort of situations during the next downturn of the real estate market.

Reprinted with permission from the February 9, 2016 edition of The Legal Intelligencer © 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, or visit

Alan Nochumson