Appellate Court Shoots down Soho Rezoning Artist Fund Fee

A state court has barred New York City from charging owners a fee when converting apartments reserved for artists, finding the practice to be unconstitutional.

The panel of Appellate Division judges agreed with the Coalition for Fairness in Soho and Noho, finding that a component of the Soho/Noho rezoning in 2021 is an unconstitutional taking without just compensation.

Under the rezoning, owners looking to convert Joint Live-Work Quarters for Artists — which are reserved for artists certified by the city — into traditional residences must pay $100 per square foot to an arts fund run by the city.

The judges found the arrangement, which was negotiated by the de Blasio administration and City Council, is not driven by a legitimate land use rationale.

The rezoning paved the way for artists’ quarters to be converted, and prohibited the creation of more such housing in Soho. The city wants to phase out these units, the decision notes, but the arts fund doesn’t pay for housing for artists.

“The city’s asserted goal … of supporting art and local artists, is not related to any land use interest,” the Dec. 5 ruling states.

A representative for the city’s Law Department indicated that the administration is standing by “the challenged provision and is reviewing its legal options.” Because the decision was unanimous, the city must file a motion seeking permission to take the case to the state’s highest court.

The Coalition for Fairness in Soho and Noho filed a lawsuit in February 2022, challenging the conversion fee and seeking to annul the entire rezoning. A state judge sided with the city last year, and the group appealed, focusing on the art fund fee.

“The court recognized the oppressive nature of this so-called ‘Arts Fund’ fee, which unfairly penalized the very residents who turned SoHo and NoHo into global hubs of creativity,” Jack Lester and Lawrence Marks, attorneys for the coalition, said in a statement.

The coalition argued that the mandatory contribution to the arts fund would “undermine financing, upset mortgage applications, and devalue property.” Potential buyers of unconverted units could lower their bids to account for the fee and renovation costs, critics said.

The lawsuit argued that owners relied on a “general policy of amnesty and non-enforcement of artists in residency qualifications” when they invested in their properties.

The city legalized JLWQAs in the manufacturing districts of Soho in the 1970s. As the neighborhood became a retail and office destination and a sought-after residential market, technically illegal ground-floor retail and posh lofts flourished and the number of certified artists dwindled.

The city does not even have a record of whether certified artists actually live in the 1,636 artists’ units in Soho and Noho. As of 2022, fewer than 100 artists were certified in the preceding decade, according to data from the Department of Cultural Affairs.

Separate from the rezoning, the City Council in 2021 approved a bill aimed at ramping up enforcement on artist units. But within a few weeks of taking office, Mayor Eric Adams vetoed the bill.

The rezoning of Soho and Noho covered more than 50 blocks and allowed more residential and commercial development as-of-right in the area. City officials estimated that the plan would add 3,500 new apartments to the neighborhood.