Six unrelated companies formed an LLC to jointly develop a large multi-use condominium project (offices, hotel, residential, retail, garage, plus a donated cultural-facility unit) on a single physically integrated site near Columbus Circle in Manhattan -- with each company always intended to end up owning only its own unit, and a not-for-profit organization set to receive one unit as an outright gift. We have to hold the whole project through one LLC during construction for practical reasons (single construction contracts, single mortgage, and NYC condominium recording rules). Once construction is done and we convert to a condominium, will distributing each finished unit to its intended owner -- and donating the cultural-facility unit -- trigger New York's Real Estate Transfer Tax?

Plain-English summary

Columbus Centre LLC ("Petitioner" or "LLC"), made up of six members -- the TWI Member (AOL Time Warner), the Hotel Member, the Residential Member, the Office Member, the Retail Member, and the Garage Member -- was developing a multi-use real estate project on land adjacent to Columbus Circle in New York City (what became the Time Warner Center). The completed Project would comprise seven condominium units: the TWI Unit (corporate offices and broadcast studio space for AOL Time Warner), the Hotel Unit, the Residential Unit, the Office Unit, the Retail Unit, the Garage Unit, and the J@LC Unit (an auditorium and related facilities to be used by Jazz at Lincoln Center Inc., a not-for-profit affiliated with Lincoln Center).

Why one LLC held title during construction. Although each Member would have preferred to hold title to its own Unit outright from the start, the Members determined the LLC needed to hold title to the whole Project during construction for four practical reasons: (1) it facilitated contracts with a single construction manager and trade contractors for what is a single, physically integrated structure; (2) it allowed single surety bonds for the major trades; (3) it made a single construction loan and blanket mortgage possible (separate mortgages on individual under-construction units aren't practical); and (4) New York has historically not allowed filing a condominium declaration or conveying individual units before substantial completion of construction. Despite this necessary joint title-holding, the LLC Operating Agreement made clear from the Project's inception that each Member is the sole beneficial owner of its own Unit, receiving 100% of that Unit's income, gain, loss, deductions, and credits, bearing all of that Unit's obligations, holding sole tax-election authority over it, and having no beneficial interest whatsoever in any other Member's Unit -- with the Operating Agreement requiring record title to be transferred to each Owner upon that Unit's completion. Financing was similarly segregated: the TWI and Hotel Members each had a separate "Allocable Share" of the blanket Acquisition/Construction Financing, with the remaining four ("Affiliated") Members sharing a combined Allocable Share, and the financing was structured to sever into Unit-specific mortgages as each Unit's title transferred.

Two exemptions apply. First, following its own established line of authority -- 115 Spring Street Company, TSB-A-94(3)-R (co-op partners beneficially owning only their own occupied units); Vacation Village Homeowners Association, TSB-A-94(6)-R (homeowners association members converting to condominium ownership); and Armory Place LLC, TSB-A-99(3)-R (an LLC of joint-venture developers distributing units to designated owners) -- the Department held the conversion of the Project to condominium form and the resulting conveyance of Units 2-6 to their respective Member Owners is a mere change of form under §1405(b)(6): beneficial ownership of each Unit continuously vested with its Member throughout, regardless of the temporary need for joint legal title. Second, because the LLC would donate the J@LC Unit to Jazz at Lincoln Center free and clear of all debts, liens, and encumbrances and for no consideration, that conveyance is separately exempt under §1405(b)(4) as a conveyance without consideration made as a bona fide gift.

Notably, this ruling explicitly does NOT address the RETT treatment of the TWI Unit's conveyance to the TWI Member -- because TWI was financing its Unit through an off-balance-sheet "synthetic lease" arrangement, that conveyance was the subject of a separate advisory opinion request (see the companion ruling, TSB-A-01(7)R, addressing the synthetic lease financing structure in detail).

What this means for you

A joint-venture LLC required to hold title jointly during construction can distribute finished condo units to each true owner tax-free -- this doctrine now has multiple confirming rulings

This is now the third-plus Department ruling applying the same mere-change-of-form logic to LLC-to-condominium conversions (following 115 Spring Street, Vacation Village, and Armory Place LLC) -- if your project needs a single title-holding entity during construction for practical financing or contracting reasons, this is a well-established, low-risk structure as long as your operating agreement consistently segregates each member's beneficial ownership from day one.

Donating a completed unit to a charity or nonprofit as part of a larger development is a separate, independently exempt transaction

Don't assume a charitable unit donation needs to piggyback on the mere-change-of-form exemption -- a conveyance made for no consideration as a bona fide gift has its own exemption (§1405(b)(4)) that applies regardless of the donor's ownership structure.

Complex projects with mixed financing (including off-balance-sheet structures for one member) can be split across multiple advisory opinion requests

Where one member of a joint project uses a fundamentally different financing structure (like TWI's synthetic lease here), it can make sense to seek a separate advisory opinion for that piece rather than trying to resolve every member's tax treatment in a single ruling -- check the companion ruling for any unit financed differently from the rest of your project.

Common questions

Q: If several developers jointly build a mixed-use condominium project through one LLC, does distributing the finished units to each developer trigger transfer tax?
A: Not if the LLC operating agreement clearly and consistently allocates each unit's beneficial ownership, profits, losses, and obligations to its intended owner from the project's inception -- the eventual legal-title conveyance is treated as a mere change of form.

Q: Is donating a completed condominium unit to a nonprofit organization, as part of a larger development, subject to transfer tax?
A: No -- a conveyance made without consideration as a bona fide gift is separately exempt, regardless of how the rest of the project's units are being distributed.

Q: If one member of a joint development project uses an unusual financing structure (like an off-balance-sheet lease), does that affect the tax treatment of the other members' units?
A: Not necessarily -- this ruling shows the Department will address the units it can rule on directly, while carving out and separately addressing (in a companion ruling) the unit financed through a different structure.

Citations and references

Statutes, guidance, and case law:

• Section 1402 of the Tax Law
• Section 1401(e) of the Tax Law
• Section 1401(f) of the Tax Law
• Section 1405(b)(4) of the Tax Law
• Section 1405(b)(6) of the Tax Law
• 115 Spring Street Company, Adv Op Comm T&F, March 30, 1994, TSB-A-94(3)-R
• Vacation Village Homeowners Association, Inc., Adv Op Comm T&F, May 24, 1994, TSB-A-94(6)-R
• Armory Place LLC, Adv Op Comm T&F, May 19, 1999, TSB-A-99(3)-R

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a01_3r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(3)R
Real Estate Transfer Tax
April 18, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M000525A

On May 25, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Columbus Centre LLC and its Members (collectively “Petitioner”), c/o The Related
Companies, L.P., 625 Madison Avenue, New York, NY 10022. Further information was submitted
by Petitioner on October 6, 2000.
The issue raised by Petitioner is whether the transfers of condominium units from Petitioner
to its respective Members are exempt from the Real Estate Transfer Tax imposed pursuant to
Article 31 of the Tax Law.
Petitioner presents the following facts. Columbus Centre LLC ("LLC") is made up of six
members (each a “Member” and, collectively, the "Members"), referred to herein as the "TWI
Member," the "Hotel Member," the "Residential Member," the "Office Member," the "Retail
Member" and the "Garage Member."
Petitioner is developing a multi-use real estate project (the "Project") on property (the
"Land") located adjacent to Columbus Circle in New York City. When constructed, it is intended
that the Project will comprise seven condominium units, as follows:

1. The TWI Unit;
2. The Hotel Unit;
3. The Residential Unit;
4. The Office Unit;
5. The Retail Unit;
6. The Garage Unit; and
7. The J@LC Unit.
   Appurtenant to each condominium unit is an interest in the condominium's common
   elements. The common elements will consist of the Land and the common facilities identified in
   the declaration of condominium to be finalized by the Members following the Land acquisition at
   or prior to substantial completion of the improvements for the Project (the "Condominium

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Declaration"). Each of the seven units in the condominium, together with its appurtenant common
elements interest, is referred to herein as a "Unit," and collectively these constitute the "Units."
Units 1-6 are referred to individually as a "Member's Unit," and collectively as the "Members' Units."
The Members' Units will vary in both form and function. The TWI Unit will include
corporate offices and broadcast studio space for AOL Time Warner ("TWI")1 and its affiliates. Each
of Units 2-6 will be used primarily for the purposes described in its name. The J@LC Unit will
consist of an auditorium and related facilities and will be used by Jazz at Lincoln Center Inc.
("J@LC"), a not-for-profit organization affiliated with Lincoln Center.
During the development of the Project, title to the Land and the building under construction
will be held by LLC. The LLC Operating Agreement will clearly provide, however, that from the
inception of the Project each Member is considered to be the beneficial owner (the "Owner") of such
Member's Unit. The LLC Operating Agreement will further require that record title to each
Member's Unit be transferred to its owner upon completion of the Unit.
The Members have agreed that, upon completion of the J@LC Unit, the LLC will convey the
J@LC Unit to J@LC free and clear of all debts, liens and encumbrances, and for no consideration.
The Members will thus donate the J@LC Unit to J@LC.
The design, use and functions of the various Units in the Project are all quite different, and
the Members would have preferred to hold title to their respective Units outright from the beginning,
without interposing the LLC structure. However, for the reasons described herein, the Members
have determined that the LLC should hold title to the Project, and should develop the Project as a
single project, until the "core and shell" of the building are completed, the Project is submitted to a
condominium regime, and title to the Units is transferred to the Owners as required in the LLC
Operating Agreement.
There are four reasons for using the LLC structure to hold title to the Units during
construction. First, this facilitates the contractual arrangements with the construction manager and
various trade contractors performing the physical work on the Project, which is a single, physically
integrated structure. Second, it makes it possible to obtain single surety bonds for each of the major
trades that will be performing work on the Project. Third, it makes it possible to obtain a single

1

TWI will employ off-balance sheet financing in the form of a “synthetic lease” to finance
the development and ownership of the TWI Unit (Unit 1). TWI has submitted a separate
advisory opinion request in respect of the synthetic lease arrangement, and as a result, the
application of the real estate transfer tax to the conveyance of the TWI Unit is not addressed by
this advisory opinion.

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construction loan and mortgage (obtaining separate mortgages on the Units, while they are under
construction, would not be practical). Finally, historically it has not been possible to file a
Declaration of Condominium and convey title to individual condominium units prior to the
substantial completion of construction. The Members therefore chose the LLC structure as the only
practical alternative for holding legal title to their Units during the construction process. It is
nonetheless their explicit intent that each Member be the beneficial owner of such Member's Unit
from inception.
The Members do not have co-ownership interests in the Project as a whole. Instead, the LLC
Operating Agreement specifies that each Member's Unit is beneficially owned by its respective
Owner (e.g., the Retail Unit is beneficially owned by the Retail Member). The LLC Operating
Agreement further provides that each Member shall receive and be entitled to all benefits, and shall
bear and be subject to all obligations, attributable to the Unit beneficially owned by such Member.
The LLC Operating Agreement also states that no Member shall have any beneficial interest in any
other Member's Unit. The LLC Operating Agreement recites the parties' agreement that the LLC is
being used to hold title to the Project during construction, to facilitate the Members' construction of
their Units.
For federal, state and local tax purposes, the LLC Operating Agreement treats each Unit as
if it is owned by its Owner, and not as an asset owned by LLC. The Agreement allocates to each
Member 100% of every item of income, gain, loss, deduction and credit attributable to such
Member's Unit. The Members do not share in the profits or losses of other Members' Units. The
LLC Operating Agreement further provides that each Member has the sole authority to make (or
direct the LLC to make) tax elections affecting such Member's Unit. Books of account are to be
maintained to separately identify the specific assets and liabilities attributable to each Member. Any
cash flow attributable to a particular Unit will be distributed only to the Owner of such Unit, and will
not be divided among the Members.
The Project will be funded by investments each Member will make out of its own funds or
separate borrowings ("Member Equity"), and an acquisition loan, a construction loan and a
mezzanine loan under one or more blanket note(s) and mortgage(s) entered into by the LLC
encumbering the Land and the entire Project (the "Acquisition/Construction Financing"). As
explained above, the Acquisition/Construction Financing will be entered into by LLC, but under the
LLC Operating Agreement and the Acquisition/Construction Financing, the TWI Member and the
Hotel Member are each allocated a separate “Allocable Share” of the entire loan, and the Residential,
Retail, Garage and Office Members (collectively, the “Affiliated Members”) are allocated a single
combined Allocable Share of the entire loan, as described below.
The recorded mortgage securing the portion of the Acquisition/Construction Financing
advanced for the acquisition of the Land was executed not only by the LLC as record owner, but also
by all of the Members as owners of their respective Units, to evidence their consent to the mortgage.

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The construction loan portion of the Acquisition/Construction Financing will be determined by
calculating loan amounts for each Unit separately, based upon either the value of such Member’s
Unit, the debt service coverage of such Member’s Unit, or the total costs attributable to such
Member’s Unit (including such Unit’s percentage share of the costs of the Land, the other common
elements and the J@LC Unit). The Acquisition/Construction lender will consider the financial
viability of each Unit and the credit of each Member separately, and may require different
percentages of Member Equity from the various Unit Owners, or guaranties or other forms of credit
support, depending upon the lender's assessment of the level of risk associated with each Unit.
The Acquisition/Construction Financing will provide that, after the filing of the
Condominium Declaration, and upon the conveyance of each of the TWI Unit and the Hotel Unit
to its respective Member Owner, the mortgage will be severed into separate mortgages reflecting
each Unit's Allocable Share of the proceeds advanced under the Acquisition/Construction Financing,
and each Owner will replace its Allocable Share of the Acquisition/Construction Financing with its
own permanent mortgage financing. Following the conveyance of the TWI and Hotel Units as
described above, the Affiliated Members’ Units, which have the same beneficial owners, will
continue to be subject to a single loan and blanket mortgage.
The Members are working cooperatively to design the overall Project, but each Member is
closely involved in the design and development of its particular Member's Unit. In addition to the
LLC Operating Agreement, each Member will enter into a Development Agreement with an entity
formed by The Related Companies, L.P. (“Related”), Apollo Real Estate Investment Fund III, L.P.
and Apollo Real Estate Investment Fund IV, L.P. (collectively “Apollo”) (such entity being the
“Developer”). Each Development Agreement will require the Developer to provide all development
and related services necessary to complete construction of such Member's Unit. Related and Apollo,
as the principals of the Developer, will provide a completion guaranty to the Acquisition/
Construction lender. Each Development Agreement sets forth the plans and budget for construction
of the Unit, and provides that the Member Owner will monitor and inspect the work. Once the
Project plans are finalized and approved by all the Members, there can be no design change affecting
any Member's Unit without such Member's consent. The cost of any changes requested by a Member
will be allocated to that Member's Unit.
Subject to compliance with the terms of the Condominium Declaration, each Member will
have the sole and absolute authority to manage, lease, operate, fit-out and equip such Member's Unit.
Each Member will bear the costs of fitting-out its own Unit.
Upon substantial completion of each Unit, as defined in each Development Agreement, the
LLC Operating Agreement requires that title to the Unit be transferred to its Owner. When title to
all of the Member's Units have been transferred to their respective Owners and the J@LC Unit has
been donated to J@LC, LLC is to be dissolved and its legal existence will terminate.

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As set forth in the J@LC Development Agreement entered into between LLC and the
Developer, and in the Restrictions Instrument which will be executed and delivered by the LLC as
required by and in favor of the City of New York, upon completion of construction of the J@LC
Unit, such Unit will be donated to J@LC, free and clear of all debt, and with no payment from
J@LC.
Applicable Law
Section 1402 of the Tax Law imposes the real estate transfer tax on each conveyance of real
property or interest therein when the consideration exceeds five hundred dollars. The term
"conveyance" is defined in section 1401(e) of the Tax Law. Included in the definition of conveyance
is the transfer or transfers of any interest in real property by any method.
Subdivision (f) of section 1401 of the Tax Law provides:
(f) 'Interest in the real property' includes title in fee, a leasehold interest, a
beneficial interest, an encumbrance, development rights, air space and air rights, or
any other interest with the right to use or occupancy of real property or the right to
receive rents, profits or other income derived from real property. . . .
Subdivision (b) of section 1405 of the Tax Law provides, in part:
(b) The tax shall not apply to the following conveyances:
*

*

*

4. Conveyances of real property without consideration, and otherwise than
   in connection with a sale, including conveyances conveying realty as bona fide gifts;
   *

*

*

6. Conveyances to effectuate a mere change of identity or form of ownership
   or organization where there is no change in beneficial ownership. . . .
   Conclusions
   In 115 Spring Street Company, Adv Op Comm T&F, March 30, 1994, TSB-A-94(3)-R,
   where each partner, pursuant to a partnership agreement, held a beneficial interest solely in the unit
   he occupied and had no interest in the other partners' units, it was recognized that the beneficial
   ownership of each unit vested with each individual partner without regard to ownership of the
   property being held by the petitioner. Thus, the transfer of the shares allocated to the units from the

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cooperative housing corporation to each partner whereby each partner received shares allocated to
the unit he occupied constituted a mere change of identity or form of ownership or organization,
since there was no change in the beneficial ownership of each unit.
In Vacation Village Homeowners Association, Inc., Adv Op Comm T&F, May 24, 1994,
TSB-A-94(6)-R, where each participant in the conversion of a homeowners association into
condominium units held a beneficial interest solely in the lot and home he or she occupied as his or
her residence and held no interest in the other homeowner's lots and homes, it was recognized that
the beneficial ownership of each lot and home had continuously vested with each individual
homeowner, without regard to the homeowner being a member of a homeowners association. Thus,
the conversion of the lots and homes within a homeowners association into condominium units and
the resulting exchange by the homeowners of their lot deeds for condominium unit deeds constituted
a mere change of identity or form of ownership or organization, since there was no change in the
beneficial ownership of each lot and home.
In Armory Place LLC, Adv Op Comm T&F, May 19, 1999, TSB-A-99(3)-R, where each
member of an LLC held a beneficial interest in its own unit and held no interest in the units of the
other members, it was recognized that the beneficial ownership of each unit had continuously vested
with each unit owner, without regard to the unit owners being members of an LLC. Thus, the
conversion of the units within the LLC into condominium units and the resulting conveyance to each
unit owner of its respective unit constituted a mere change of identity of form of ownership or
organization, since there was no change in the beneficial ownership of each unit.
In the instant case, each Member, pursuant to the LLC Operating Agreement, holds a
beneficial interest in its own Unit and holds no interest in the Units of the other Members. Under
the proposed plan, upon completion of the project, Petitioner will convert the property to a
condominium form of ownership and will then convey each of the Units to its respective Owner.
Accordingly, it is recognized that the beneficial ownership of Units 2-6 will continuously vest with
such Unit's respective Unit Owner, without regard to the Owners being Members of Petitioner.
Therefore, pursuant to the rationale set forth in 115 Spring Street Company, Vacation Village
Homeowners Association, Inc., and Armory Place LLC, supra, the conversion of the Property by
Petitioner into condominium units and the resulting conveyance of legal title to Units 2-6 to their
respective members will not effectuate a change in the beneficial ownership interest as held by the
Members prior to the conversion. Accordingly, pursuant to Section 1405(b)(6) of the Tax Law, the
conversion of the Project to a condominium and the conveyance of each of Units 2-6 to its respective
Member Owner will constitute a total mere change of identity or form of ownership or organization,
and such conveyances will be exempt from the Real Estate Transfer Tax.

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Finally, pursuant to sections 1402 and 1405(b)(4) of the Tax Law, because Petitioner will
donate the J@LC Unit (Unit 7) to J@LC for no consideration, the conveyance of the J@LC Unit will
not be subject to the Real Estate Transfer Tax.

DATED: April 18, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Bureau

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.