I hold an oil and gas lease on New York real property, and I'm extending its primary term by paying my lessor an additional sum, per an option clause in the lease. I want to record an affidavit documenting that extension with the county clerk. Do I have to complete and file Form TP-584 (the Real Estate Transfer Tax return), including Schedule B, to record that affidavit?

Plain-English summary

An oil and gas lessee held a lease on New York real property with a "primary term" during which it had the right to begin development activities on the leased property. The lease was recorded with the county clerk to put the world on notice of its existence. The lease also gave the lessee an option to extend the primary term for an additional fixed period by paying the lessor a specified sum. When a lessee exercises that option, it wants to record an affidavit attesting to the payment and the resulting extension, so that no one else can lease the same oil and gas rights during the extended term. The lessee asked whether Form TP-584 (New York's Real Estate Transfer Tax return), specifically Schedule B, has to be completed and filed in order to record that affidavit.

The Department held yes. Tax Law § 1402(a) imposes the Real Estate Transfer Tax (RETT) on every conveyance of real property or an interest in it where consideration exceeds $500. Tax Law § 1401(f) defines "interest in real property" broadly to include development rights, among other things -- and an oil and gas lease is itself a type of development right, making the original lease a conveyance of an interest in real property. Extending that lease's term is a further, additional conveyance of the same kind of interest. Because Form TP-584's own instructions require the form (which contains Schedule B, the actual transfer tax return) to be filed "for each conveyance of real property from a grantor to a grantee/transferee" -- regardless of whether consideration is separately reported -- and because TSB-M-97(1)R confirms this rule applies to oil and gas lease creation or extension, Schedule B must be completed, signed by both the lessor (grantor) and the lessee (grantee), and filed with the county clerk before the affidavit documenting the extension can be recorded. The RETT owed on the consideration paid for the extension must also actually be paid: Tax Law § 1404(a) makes the grantor (lessor) primarily responsible, but shifts that duty to the grantee (lessee) if the grantor fails to pay.

What this means for you

Exercising a lease-extension option is a separate taxable event, not a continuation of the original lease

Even though the right to extend was written into the original lease and no new lease document is being created, actually exercising that option to extend the term is treated as its own conveyance of an interest in real property -- triggering its own Form TP-584/Schedule B filing and RETT liability, on top of whatever was owed on the original lease.

You can't record the extension affidavit without first filing Schedule B

The county clerk recording process is gated on the transfer tax paperwork: to record an affidavit attesting to an oil and gas lease extension, Schedule B of Form TP-584 must be filed (signed by both lessor and lessee) as a precondition, regardless of how the consideration for the extension is structured or reported.

As lessee, you may end up paying RETT even though the grantor is primarily liable

Tax Law § 1404(a) puts primary responsibility for paying RETT on the grantor (here, the lessor) -- but if the lessor doesn't pay, the statute shifts the duty to the grantee (the lessee). A lessee extending a lease should confirm the RETT gets paid, since it can end up on the hook.

Common questions

Q: Do I need to file Form TP-584 again if I'm just extending an existing, already-recorded oil and gas lease under an option clause that was already in the lease?
A: Yes. The Department treats a lease extension as an additional conveyance of an interest in real property (a development right), separate from the original lease, so Schedule B of Form TP-584 must be filed for the extension itself.

Q: Does Form TP-584 have to be filed even if the extension payment is small or not separately itemized as "consideration"?
A: Yes. Per Form TP-584's instructions and TSB-M-97(1)R, the form must be filed for every conveyance of real property regardless of whether consideration is reported.

Q: Who is responsible for paying the Real Estate Transfer Tax on a lease extension -- the lessor or the lessee?
A: The lessor (grantor) is primarily responsible under Tax Law § 1404(a). But if the lessor doesn't pay, the lessee (grantee) has the duty to pay it.

Citations and references

Statutes and guidance:

• Tax Law § 1402(a)
• Tax Law § 1401(f)
• Tax Law 1404(a)
• TSB-M-97(1)R

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a15_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(1)R
Real Estate Transfer Tax
March 12, 2015

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M131220B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTED (“Petitioner”). Petitioner asks whether Form TP-584 (Real Estate
Transfer Tax Return), and specifically Schedule B, must be completed and filed to be able to
record an affidavit attesting to the performance of an act necessary to extend the term of an oil
and gas lease (which lease was previously recorded). Petitioner is the lessee.
We conclude that Form TP-584, and specifically Schedule B, must be completed and
filed in this instance.
Facts
Petitioner is the lessee of oil and gas rights to real property. The lease in question
includes a “primary term,” during which the lease remains effective and the lessee has the right
to commence development activities involving the property covered by the lease. The lease is
filed with the applicable county clerk to provide notice to all of the existence of the lease.
Petitioner further notes that such leases often include a provision that allows the lessee, at
its option, to extend the primary term of the lease for an additional fixed period by making a
specified payment to the lessor. A Lessee who extends the primary term of the lease pursuant to
this provision wants to provide notice of the extension so that no one can lease the oil and gas
rights to the property in question during the extended term. Accordingly, a lessee will seek to
record an affidavit attesting to the payment of the additional sum and extension of the primary
term of the applicable lease.
Analysis
Under Tax Law § 1402(a), a tax is imposed on each conveyance of real property or
interest therein when consideration exceeds $500. A “‘[c]onveyance’ means the transfer or
transfers of any interest in real property by any method, including but not limited to sale,
exchange, assignment, 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 . . . .”
Tax Law § 1401(f) provides that an interest in 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,

-2-

TSB-A-15(1)R
Real Estate Transfer Tax
March 12, 2015

profits, or other income derived from real property. An oil and gas lease is a type of development
right and so constitutes an interest in real property.
The extension of an oil and gas lease beyond its initial term is also an additional conveyance
of the development rights, i.e., of an interest in real property.

The instructions to Form TP-584 state “Form TP-584 (which contains in Schedule B the
real estate transfer tax return) must be filed for each conveyance of real property from a grantor
to a grantee/transferee.” The creation of a gas or oil lease, or an extension thereof, which is a
conveyance of an interest in real property, requires the filing of Form TP-584, regardless of
whether or not consideration is reported. See TSB-M-97(1)R.
Thus, to record an affidavit attesting to the payment of an additional sum and extension of the
primary term of an oil and gas lease (which lease was previously recorded), Schedule B of Form
TP-584 must be completed and filed with the county clerk. The form must be signed by the
grantor and the grantee (i.e., the lessor and lessee, respectively, in this instance). In addition, the
real estate transfer tax due on the consideration for the extension must be paid. Tax Law 1404(a)
provides that “the real estate transfer tax shall be paid by the grantor. If the grantor has failed to
pay the tax imposed by this article at the time required . . . the grantee shall have the duty to pay
the tax.” If Petitioner’s lessor does not pay the tax, Petitioner must do so.

DATED: March 12, 2015

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.