Did assigning the remainder of a 50-year ground lease and tenant-owned improvements trigger Connecticut real estate conveyance tax?

Note -- dated guidance. DRS marks this ruling "not current … provided for reference purposes only." The page identifies Ruling 93-12 as citing it but does not name a specific obsoleting document. Verify current conveyance-tax rules.

Plain-English summary

A landlord granted a single 50-year ground lease with no renewal options. The tenant had to construct and own a building during the lease, with the building reverting to the landlord without consideration when the lease ended. The tenant later dissolved, and a successor took over its lease rights.

DRS held that assigning the remaining ground-lease term and transferring the tenant's interest in the improvements were not subject to state or municipal real estate conveyance taxes. The historical regulations defined leasehold "realty" to include leases lasting, or potentially lasting, 99 years or more. This lease could not reach 99 years, and neither could the tenant's ownership interest in improvements that reverted at expiration.

What this means for you

The historical result depended on a fixed 50-year term, no renewal options, and mandatory reversion of improvements. Longer or renewable leases may be treated differently, and DRS marks this page not current.

Common questions

Why was the lease assignment not a conveyance? The lease could not last 99 years or more under the cited regulatory definition.

Why were the improvements also outside the tax? The tenant's ownership ended when the 50-year lease expired and the building reverted to the landlord.

Citations and references

• Conn. Agencies Regs. § 12-494-1(b)(2).
• Conn. Agencies Regs. § 12-494-2(c)(5).
• Ruling 93-12 -- identified by DRS as citing this ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 90-74

Original ruling text

Ruling 90-74, Real Estate Conveyance Taxes

This information is not current and is being provided for reference purposes only

Ruling 90-74

Real Estate Conveyance Taxes

This Ruling has been cited in  Ruling 93-12

ISSUE:

Whether the assignment by a tenant (or its successors or assigns) of the unexpired portion of a 50-year ground lease and the transfer by the tenant (or its successors or assigns) of improvements constructed on the leased premises, which improvements are to revert, without consideration, to the landlord upon the expiration of the ground lease, will be conveyances subject to the State and municipal real estate conveyance taxes.

FACTS:

Under a ground lease [hereinafter, "the Ground Lease"] with a single fixed term of 50 years (and no renewal options), a landlord [hereinafter, "the Landlord"] leased premises located in Connecticut [hereinafter, "the Leased Premises"] to a limited partnership [hereinafter, "the Tenant"].

No improvements were constructed on the Leased Premises at the commencement of the term of the Ground Lease, but the Tenant was obligated under the Ground Lease to construct a building on the Leased Premises.

The building to be constructed on the Leased Premises was to be owned by the Tenant during the term of the Ground Lease, and to revert, without consideration, to the Landlord upon expiration of such term.

The Tenant subsequently dissolved, and its sole remaining partner [hereinafter, "the Successor"] succeeded to the limited partnership's rights as tenant under the Ground Lease pursuant to an Assignment of Ground Lease by and between the Tenant, the Successor and the Landlord.

DISCUSSION:

Conn. Agencies Regs. §12-494-1 (b)(2) defines "realty" as including, but not being limited to, "long-term leases or other ownership interests which endure for a fixed period of 99 years or more, or which may so endure because of extension or renewal options."

Conn. Agencies Regs. §12-494-2(c)(5) gives as an example of a transaction which is not a conveyance and, accordingly, not subject to the State and municipal real estate conveyance taxes "a lease other than a lease described in §12-494-1(b)(2)."

The Ground Lease neither endures for a fixed period of 99 years or more nor may so endure because of extension or renewal options. A fortiori, the assignment of the unexpired term of the Ground Lease will not be a lease described in §12-494-1(b)(2).

The transfer of improvements that were constructed on the Leased Premises will transfer ownership interests in realty, but those interests neither endure for a fixed period of 99 years or more nor may so endure because of extension or renewal options. Accordingly, the transfer of those interests will not be a conveyance of "realty", as defined in Conn. Agencies Regs. §12-494-1(b).

RULING:

The assignment by the Tenant (or its successors or assigns) of the unexpired portion of the Ground Lease and the transfer by the Tenant (or its successors or assigns) of improvements constructed on the Leased Premises, which improvements are to revert, without consideration, to the Landlord upon the expiration of the Ground Lease, will not be conveyances subject to the State and municipal real estate conveyance taxes.

LEGAL DIVISION

December 4, 1990