What does “ownership” mean? 

There are many ways to structure a transaction in the U.S., but by and large, whatever the deal looks like, most would-be owners, even those with vast resources, are either compelled or find it far more prudent to obtain financing in the form of a traditional mortgage rather than plunk down hundreds of thousands or millions in cash in a lump sum.  As a practical matter, most Americans and their institutions have no choice but to obtain a loan, secured by the property.  We take all this for granted, but the oddity of this approach is that while the so-called “purchaser” obtains what we refer to as “record” title, the reality is that the property is actually being held in trust for the mortgagee (the lender) in the event payments are not made. 

So who really owns the property?  Does the entry on the record books in favor of the purchaser, even though many sticks in the bundle of rights are held by another party, make it so?

And what if you followed a religion that prohibited this common type of transaction because the payment of interest on money was not allowed?  Purchasing property, then, would likely require an alternate transaction in which you acquired the incidents of ownership but without the use of a mortgage and the payment of interest.  This is precisely what occurs when a Muslim purchases real estate: often a transaction that looks a lot like a “rent-to-own” approach is created, with the purchaser acquiring all of the benefits and burdens of true ownership, and recorded title passing after the payment of a set sum over time.  Hardly different in substance from a traditional mortgage arrangement, but without interest on the sum loaned.

Who could fault New York’s lawmakers for failing to consider all this when they drafted the State’s religious property tax exemption statute decades ago?  The code simply requires that if you are a religious entity you are exempt from the payment of real estate taxes — so long as you “own” the property. 

The statute makes no reference to record ownership nor does it define “own” at all.  The most common religious entity owners in New York — Christian and Judaic institutions — make liberal use of the common mortgage transaction, which provides the entity with record ownership and they receive their tax exemption without much fuss, even though a for-profit lender somewhere usually holds a substantial interest in the property; the exemption, particularly in some parts of the State, amounts to a substantial savings for a not-for-profit, particularly those that attempt to operate cost-intensive parochial schools. 

Not so for El-Ber, which has operated an Islamic school at 2542 49th Street in Astoria, Queens, New York for over a decade, struggling to break even as it suffers under a heavy commercial tax burden levied by City Hall.  El-Ber, as a small school with limited funds, and attempting to adhere to its own religious code in acquiring a facility, entered into a traditional and faith-based payments-to-own contract with a for-profit landowner by which the school would have all of the incidents of true ownership but without the use of an interest-bearing mortgage.  The school is fully responsible for the maintenance and upkeep of its property, and pays all of the costs of operating the school and its facilities, including, for now, the payment of real property taxes to New York City.

The school sought relief under the property tax statute, contending that for purposes of the law it is an “owner” and should be treated like every other religious school that has been granted the exemption.  The City summarily denied El-Ber’s application, contending that the school was not an owner because it had not recorded title.  Brought to court, a judge sided with the City, ignoring the testimony of New York’s leading real estate expert, who opined that the school was, in fact, an owner given its substantial rights in the property. 

The irony, of course, is that the Islamic school is effectively being denied its right to the free exercise of its religion as well as the right to be treated like every other school precisely because it has made the choice to carefully adhere to the requirements of its own religion.  It would be easy enough to suggest that if El-Ber would simply produce a lump sum of cash to purchase the property it too would be entitled to an exemption, but we all know that this is highly unrealistic.  We also recognize that to place an overwhelming financial burden on one entity that is not placed on another, solely because of its religious beliefs, is patently unconstitutional.

In one of the leading cases on point, Matter of Colleges of the Seneca v. City of Geneva, New York’s highest court granted the exemption despite ownership by a private for-profit entity because the nature of the transaction between the parties and the operation and control of the facilities demonstrated that the educational institution was properly considered the owner.  Other cases agree. 

Controversy swirls around a variety of the interactions between Muslims and the City of New York, with sharply divided opinions.  El-Ber presents a unique opportunity for the courts to reassure us that the free exercise of religion continues to be a respected and fundamental constitutional right that is not diluted when applied to the Islamic faith.  I will argue to the Appellate Division, on January 4, that New York’s religious tax exemption statute must apply a broader reading of the term “owner” if it is to remain constitutional.