To obtain property tax and other benefits under New York's Cultural Resources Act, I plan to convey one condominium unit of my building (currently leased to a public TV station) to the Trust for Cultural Resources of the City of New York for just $10, subject to my existing mortgages -- then immediately lease it back from the Trust for $10/year for up to 4 years, after which title automatically reverts to me. I'll stay liable for all the mortgage debt and expenses, and remain the beneficial owner for tax purposes the whole time. Do these title conveyance, leaseback, and reversion steps trigger New York's Real Estate Transfer Tax?

Plain-English summary

The owner of an office building at 450 West 33rd Street in Manhattan planned to create a condominium with two units: a "Channel 13 Unit" covering the portion of the building leased to public television station WNET/Channel 13, and a "Landlord Unit" covering the rest of the property. To obtain property tax and other benefits available under New York's Arts and Cultural Affairs Law, the owner planned a three-step arrangement with the Trust for Cultural Resources of the City of New York (a public benefit entity formed under that Law):

Title Conveyance: The owner would deed the Channel 13 Unit to the Trust for just $10.00, subject to an existing first mortgage (~$34 million outstanding) and a second "Collateral Mortgage" (~$14.6 million) securing part of a larger $232.8 million debt on the Landlord Unit. Despite this transfer, the owner would remain personally liable for all the mortgage debt and obligations, remain responsible for all other expenses tied to the unit, and remain the beneficial owner of the unit for federal, state, and local income tax purposes — the Trust would have no obligation to improve, repair, or maintain any part of the unit.

Leaseback: The Trust would immediately net-lease the Channel 13 Unit back to the owner for $10.00 per year, for a term ending on the earlier of the fourth anniversary of the Title Conveyance or any "reverter event" specified in the deed. The owner would keep subleasing the space to WNET/Channel 13 under its existing lease (as modified), with Channel 13's sublease subordinated to both the condominium declaration and the leaseback.

Reversion: Per the deed and leaseback terms, title to the Channel 13 Unit would automatically revert back to the original owner upon the earlier of the fourth anniversary or a reverter event.

The Department applied the Tax Law §1405(b)(6) exemption for conveyances that merely change the identity or form of ownership without changing beneficial ownership. Because the owner would remain liable for all the mortgage indebtedness and obligations, would continue subleasing the property to Channel 13, would remain responsible for all other unit expenses, and would remain the beneficial owner for all income tax purposes throughout — with the Trust taking on no maintenance or improvement responsibilities at all — the Department concluded that all three steps (Title Conveyance, Leaseback, and Reversion) together constitute a mere change of form with no real change in beneficial ownership, and are collectively exempt from RETT, following the Department's prior ruling in the Urban Development Corporation/Milstein Brothers 42nd Street LLC matter (TSB-A-03(1)R), which addressed a similar Cultural Resources Trust arrangement.

What this means for you

Nominal-consideration transfers to a public benefit trust for tax-benefit purposes can be RETT-free -- if you keep the real economic burden

The low ($10) consideration for the conveyance and leaseback isn't itself what earns the exemption -- what matters is that the original owner retained mortgage liability, expense responsibility, and beneficial ownership for income tax purposes throughout the entire Trust arrangement, with the Trust bearing no maintenance obligations.

An automatic reversion clause reinforces (rather than undermines) the mere-change-of-form analysis

Structuring the arrangement so title automatically reverts to the original owner after a set period (here, up to four years) or upon a defined trigger event, rather than requiring a separate reconveyance transaction, supports treating the whole sequence as one economically unified, temporary legal-form change rather than a real transfer.

This ruling follows an established Department pattern for Cultural Resources Trust arrangements

The Department expressly relied on its prior TSB-A-03(1)R ruling in a similar Urban Development Corporation/Trust matter -- developers considering a similar cultural-benefits-driven Trust conveyance can look to this consistent line of rulings as a template, provided the same retained-liability/retained-benefit facts are replicated.

Common questions

Q: If I convey property to a public trust for just $10 to access a tax benefit program, does the low price alone make it RETT-exempt?
A: No -- the exemption here depended on the original owner retaining all mortgage liability, expense responsibility, and beneficial tax ownership throughout, not simply on the nominal price paid.

Q: Does a leaseback following this kind of trust conveyance get separately taxed?
A: No -- where the leaseback is part of the same mere-change-of-form arrangement (nominal rent, same retained liabilities), it's covered by the same Tax Law §1405(b)(6) exemption as the initial conveyance.

Q: What happens tax-wise when title automatically reverts back to the original owner at the end of the arrangement?
A: The reversion is also exempt, as part of the same overall mere-change-of-form transaction -- since beneficial ownership never actually left the original owner, the reversion isn't treated as a new taxable conveyance either.

Citations and references

Statutes and guidance:

• Section 1402(a) of the Tax Law
• Section 1401(d) of the Tax Law
• Section 1401(e) of the Tax Law
• Section 1401(f) of the Tax Law
• Section 1405(b) of the Tax Law
• Section 575.10 of the Regulations
• TSB-A-03(1)R (Urban Development Corporation (d/b/a Empire State Development Corporation) and Milstein Brothers 42nd Street LLC, October 9, 2003)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2007.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a07_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-07(1)R
Real Estate Transfer Tax
April 12, 2007

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M060531A

On May 31, 2006, the Department of Taxation and Finance received a Petition for
Advisory Opinion from 450 Partners LLC, c/o The Chetrit Group, 404 Fifth Avenue, 4th Floor,
New York, NY 10018.
Petitioner, 450 Partners LLC, submitted additional information
pertaining to the Petition on January 19, 2007.
The issue raised by Petitioner is whether the “Title Conveyance,” “Leaseback,” and
“Reversion” transactions described below are subject to the real estate transfer tax imposed by
Article 31 of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is the owner of real property located at 450 West 33rd Street, New York, NY
(the “Property”). Petitioner is contemplating the creation of a condominium at the Property.
The condominium would consist of two condominium units: one unit covering that portion of
the Property currently leased to WNET/Channel 13 (the “Channel 13 Unit”) and one unit
covering the remainder of the Property (the “Landlord Unit”).
Title Conveyance
Pursuant to a condominium unit deed (the “Deed”), Petitioner will convey title to the
Channel 13 Unit to The Trust for Cultural Resources of the City of New York (the “Trust”) for a
consideration of $10.00 and subject to (1) an existing mortgage with an outstanding principal
balance of approximately $34 million (the “First Mortgage”) and (2) a second mortgage in the
principal amount of $14,592,000 (the “Collateral Mortgage”) serving as additional collateral for
a portion of indebtedness in the original principal amount of $232,776,000, which indebtedness
is secured by a first mortgage lien on the Landlord Unit (the First Mortgage and Collateral
Mortgage together are hereinafter referred to as the “Mortgages”). The Trust was formed under
Articles 20 and 21 of the Arts and Cultural Affairs Law.
In spite of the Title Conveyance of the Channel 13 Unit to the Trust, Petitioner will
remain liable for all indebtedness secured by the Mortgages and for all obligations under the
Mortgages. In addition, Petitioner will remain liable for all other expenses associated with the
Channel 13 Unit and will remain the beneficial owner of the Channel 13 Unit for federal, state,
and local income tax purposes. The Trust will have no obligation to improve, replace, service,
adjust, repair, or maintain any portion of the Channel 13 Unit.

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Real Estate Transfer Tax
April 12, 2007

Leaseback
The Trust will net lease the Channel 13 Unit back to Petitioner for an annual rent of
$10.00. The term of the Net Lease will expire on the earlier of the fourth anniversary of the date
of the Title Conveyance of the Channel 13 Unit to the Trust or the occurrence of any reverter
event described in the Deed.
Petitioner will sublease the Channel 13 Unit to WNET/Channel 13 pursuant to the terms
of an existing lease between Petitioner and WNET/Channel 13, as modified by the parties (the
“Sublease”). Channel 13 shall subordinate the Sublease to the condominium declaration and the
Leaseback.
Reversion
According to the terms of the Deed and the Leaseback, title to the Channel 13 Unit will
revert to Petitioner upon the earlier of the fourth anniversary of the date of the Title Conveyance
or the occurrence of any reverter event described in the Deed.
Applicable law and regulations
Section 1402(a) of the Tax Law imposes the real estate transfer tax on each conveyance
of real property or interest therein and provides, in part:
A tax is hereby imposed on each conveyance of real property or interest
therein when the consideration exceeds five hundred dollars, at the rate of two
dollars for each five hundred dollars or fractional part thereof; . . .
Section 1401(d) of the Tax Law provides, in part:
“Consideration” means the price actually paid or required to be paid for
the real property or interest therein, including payment for an option or contract to
purchase real property, whether or not expressed in the deed and whether paid or
required to be paid by money, property, or any other thing of value. It shall
include the cancellation or discharge of an indebtedness or obligation. It shall also
include the amount of any mortgage, purchase money mortgage, lien or other
encumbrance, whether or not the underlying indebtedness is assumed or taken
subject to.
Section 1401(e) of the Tax Law provides:
“Conveyance” means the transfer or transfers of any interest in real
property by any method, including but not limited to sale, exchange, assignment,

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TSB-A-07(1)R
Real Estate Transfer Tax
April 12, 2007

surrender, mortgage foreclosure, transfer in lieu of foreclosure, option, trust
indenture, taking by eminent domain, conveyance upon liquidation or by a
receiver, or transfer or acquisition of a controlling interest in any entity with an
interest in real property. Transfer of an interest in real property shall include the
creation of a leasehold or sublease only where (i) the sum of the term of the lease
or sublease and any options for renewal exceeds forty-nine years, (ii) substantial
capital improvements are or may be made by or for the benefit of the lessee or
sublessee, and (iii) the lease or sublease is for substantially all of the premises
constituting the real property. Notwithstanding the foregoing, conveyance of real
property shall not include a conveyance pursuant to devise, bequest or
inheritance; the creation, modification, extension, spreading, severance,
consolidation, assignment, transfer, release or satisfaction of a mortgage; a
mortgage subordination agreement, a mortgage severance agreement, an
instrument given to perfect or correct a recorded mortgage; or a release of lien of
tax pursuant to this chapter or the internal revenue code.
Section 1401(f) of the Tax Law provides:
“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. It shall
also include an option or contract to purchase real property. It shall not include a
right of first refusal to purchase real property.
Section 1405(b) of the Tax Law provides, in part:
The tax shall not apply to the following conveyances:
*

*

*

6. Conveyances to effectuate a mere change of identity or form of
   ownership or organization where there is no change in beneficial ownership, other
   than conveyances to a cooperative housing corporation of the real property
   comprising the cooperative dwelling or dwellings;
   Section 575.10 of the Regulations provides, in part:
   To the extent that a conveyance effectuates a mere change of identity or
   form of ownership or organization and there is no change in beneficial ownership,
   the real estate transfer tax does not apply….

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TSB-A-07(1)R
Real Estate Transfer Tax
April 12, 2007

Opinion
Section 1405(b)(6) of the Tax Law provides an exemption from the real estate transfer
tax to the extent that a conveyance effectuates a mere change of identity or form of ownership or
organization where there is no change in beneficial ownership.
In the present case, all of the benefits and burdens of ownership remain with Petitioner at
all times. Petitioner will remain liable for all indebtedness and for all obligations secured by the
Mortgages. Petitioner will also continue to sublease the unit to WNET/Channel 13 pursuant to
the terms of the existing lease, as modified, between Petitioner and WNET/Channel 13. In
addition, Petitioner will remain liable for all other expenses associated with the Channel 13 Unit
and will remain the beneficial owner of the Channel 13 Unit for federal, state, and local income
tax purposes. The Trust will have no obligation to improve, replace, service, adjust, repair, or
maintain any portion of the Channel 13 Unit.
Therefore, the Title Conveyance, Leaseback, and Reversion are all exempt from the real
estate transfer tax as conveyances that constitute a mere change of identity or form of ownership
or organization pursuant to section 1405(b)(6) of the Tax Law since there is no change in
beneficial ownership of the Property. See Urban Development Corporation (d/b/a Empire State
Development Corporation) and Milstein Brothers 42nd Street LLC, Adv Op T&F, October 9,
2003, TSB-A-03(1)R.

DATED: April 12, 2007

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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