Were 99-year co-op leases issued to the original bankruptcy-plan purchasers subject to deed tax?

Subject

99-Year Proprietary Leases

Plain-English summary

The 99-year proprietary leases issued after closing to the original shareholder-purchasers were not subject to documentary stamp tax. Before the cooperative bought the mobile-home park under a confirmed Chapter 11 plan, those purchasers had placed the purchase funds in escrow or paid a deposit and become absolutely obligated for the balance.

Florida treated the cooperative and lessees' association as acquiring and holding the property for those principals. The later memoranda of proprietary lease represented their already funded ownership interests rather than new taxable purchases.

What this means for you

The exemption was narrow. It covered only the original purchasers tied to the bankruptcy-plan acquisition. Proprietary leases issued to later purchasers were taxable, and notes or mortgages securing original purchasers' unpaid balances were separately taxable.

Common questions

Q: Were the original purchasers' 99-year lease memoranda taxable? No.

Q: Did later buyers receive the same treatment? No. Their purchases were outside the original Chapter 11 transaction and were taxable.

Q: Were purchase-money notes and mortgages exempt? No. The ruling said those instruments were subject to tax under section 201.08.

Citations and references

• Fla. Stat. § 201.02 — documentary stamp tax on real-property conveyances
• Fla. Stat. § 201.08 — tax on notes and mortgages
• Fla. Admin. Code r. 12B-4.013(22) — bankruptcy transfers
• Fla. Admin. Code r. 12B-4.014(5) — agent-to-principal conveyances
• 11 U.S.C. § 1146(c) — confirmed Chapter 11 plan transfer, as cited in the ruling
• Department of Revenue v. Zuckerman-Vernon Corp., 354 So. 2d 353 (Fla. 1977) — resulting trust
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00B4-007

Original ruling text

SUMMARY

QUESTION: Are ownership interests in a co-op purchased with
funds placed in escrow before the purchase of property
under a Chapter Eleven Bankruptcy Plan of Reorganization

subject to documentary stamp tax?

ANSWER - BASED ON FACTS BELOW: Where an agent purchases

property under a Chapter Eleven Bankruptcy Plan with funds
placed in escrow by the original shareholders/principals in
the co-op prior to the purchase, the transfer of ownership
interests from the agent to the principals (original

shareholders) is exempt from documentary stamp tax.

May 15, 2000

Re: Technical Assistance Advisement No. 00B4-007
Documentary Stamp Tax; 99-Year Proprietary Leases Issued in
Connection with Original Purchase under Chapter Eleven
Bankruptcy Plan of Reorganization
Sections 201.02, 201.08, F.S.

Rules 12B-4.013(22), 12B-4.014(5), F.A.C.
XXX (Debtor, hereinafter, Debtor)

XXX (hereinafter, CO-OP)

XXX (hereinafter, Lessees' Association)

XXX (mobile home park; hereinafter, Property)
Dear :

Your letter requesting a Technical Assistance Advisement
has been referred to this office for response. The specific
scenario for which advice has been requested is summarized

below.

Facts as Presented by Petitioner

Debtor owned the Property (mobile home park), which was

operating under the Debtor's Third Amended Plan of

Reorganization under Chapter 11 of the United States Bankruptcy
Code. This plan was ultimately confirmed by the Bankruptcy

Court under s. 1129 of the Bankruptcy Code on XXX. The sale of
the Property on XXX was made pursuant to the plan. There were

approximately 499 shareholders in the park at this time.

Prior to the purchase, the CO-OP was formed as a
corporation on XXX, for the purpose of operating the Property
when purchased. The Lessees' Association collected and held the
purchase moneys as "Escrow Agent" in accordance with the terms
of the Membership Certificate and Proprietary Lease Agreement
prior to the purchase of the Property. In that document, the

parties agreed:

...that the Association shall sell and the Purchaser shall
purchase a Membership Share Certificate of the Association,
and Association agrees, upon conversion of the property
hereinafter described to cooperative ownership, to issue to
Purchaser a Proprietary Lease on Lot#__, XXX, Florida
("Park") under the terms and conditions hereinafter set

forth...

The Receipt of Share Subscription Funds stated the amount
collected from the original shareholder/purchaser and stated in

part that the funds were received:

..iN connection with the purchase of a share in XXX CO-OP,
Inc., together with a 99-Year Proprietary Lease on the

above said lot....

Most, if not all, of the original shareholders purchased
Membership Share Certificates from the Lessees' Association by
contributing monies in escrow in advance to provide funds to

purchase Debtor's Property.

Prior to the purchase of the Property, each original
shareholder/purchaser either contributed the entire amount of
the purchase price for their units or placed a deposit and bound
themselves for the balance due by a note and mortgage in favor
of Lessees' Association. Those shareholders who did not pay the

full amount of the purchase price of their units received a

membership certificate with a notation that the Lessees'
Association has a lien for the balance of the purchase price.
In the event that the closing for the purchase of Property was
not completed, the escrow amount was to be refunded to the

shareholder/purchaser.

After closing, a warranty deed conveyed the subject
property from grantor Debtor to CO-OP, grantee. It was recorded
in the subject County. No documentary stamp tax was paid on

recordation of the deed.

Subsequent to the time CO-OP purchased the Property and
converted it to cooperative ownership, the CO-OP issued to each
original shareholder/purchaser a 99-year Memorandum of
Proprietary Lease. This was in accordance with the Master Form
Proprietary Lease, which was to be recorded in the public records
of the county. The Memorandum of Proprietary Lease gave to each
original shareholder/purchaser the exclusive right of possession
of their unit during the entire term of the lease. Documentary

stamp taxes were paid on each Memorandum of Proprietary Lease.

Request for Advisement

The Lessees' Association was acting as escrow agent for the
original shareholder/purchasers (principal). Taxpayer requests
a ruling that the leases (signed by the original
shareholder/purchasers who had deposited the required sums with
the Lessees' Association prior to the purchase of the property
by CO-OP) should not have been subject to documentary stamp tax.
This is because the leases of the original
shareholder/purchasers represented ownership interests in the
property purchased under s. 1129 of Chapter 11 of the U.S.
Bankruptcy Code.

Law and Analysis

Section 201.02, F.S. states:

(1) On deeds, instruments, or writings whereby any lands,
tenements, or other real property, or any interest therein,

shall be granted, assigned, transferred, of otherwise

conveyed to, or vested in, the purchaser or any other
person by his or her direction, on each $100 of the

consideration therefor the tax shall be 70 cents... (e.s.)

Regarding transfers in bankruptcy, Rule 12B-4.013, Florida

Administrative Code, states:

(22) Transfer in Bankruptcy: Sale of real property by
trustees, debtors, or receivers in federal bankruptcy
proceedings is subject to tax unless the transfer is made
pursuant to a plan confirmed under s. 1129 of the
Bankruptcy Code, is a precondition or is essential to the
confirmation of the plan, or is necessary to consummate or
implement a confirmed plan. The debtor must be a party to
the transfer. If the bankruptcy court does not ultimately
confirm the plan under 11 U.S.C. s. 1129, the transfer
would not be exempt pursuant to 11 U.S.C. s. 1146 (c), and

would be subject to tax....

Under Rule 12B-4.014, Florida Administrative Code:

(5) Agent to Principal: A deed from an agent to his
principal conveying real estate purchased for and with

funds of the principal is not taxable.

The CO-OP received the Property as grantee under the deed
from the Debtor. The deed was exempt from documentary stamp
tax, because the plan was confirmed under 11 U.S.C. s. 1129 of

the Bankruptcy Code and the Debtor was a party to the transfer.

Rule 12B-4.014 (5), F.A.C., exempts the deed (or writing)
whereby the agent conveys the real property purchased for and
with the funds of the principal. The Lessees' Association was
the corporation acting for the individual
shareholder/purchasers. A corporation may act as an agent for
an individual. Patek v. Associated Ins. Underwriters Inc., 160

So.2d 721 (3 DCA, 1964). Under the provisions of the

Subscription Agreement for Membership Certificate and
Proprietary Lease, the Lessees' Association was acting as escrow
agent when it collected funds from its principal, the original

shareholder/purchasers, in advance of the purchase of the

property.

A resulting trust arises when one of the parties toa
transaction pays the consideration for the purchase of property,
but the title is taken in the name of another by his direction.

Department of Revenue v. Zuckerman-Vernon Corp., 354 So.2d 353

(Fla. 1977). The court determined in Womack v. Madison Drug
Co., 155 Fla. 335, 20 So.2d 256 (1944), that a resulting trust

“must arise, if at all, at the instant legal title vests and the
alleged beneficiary must have paid the purchase price or bound
himself by an absolute obligation to pay it". A resulting trust
arose when the Lessees' Association gave the collected funds to
the actual buyer of the property, the CO-OP, on behalf of the

original shareholder/purchasers.

The deed conveyed the Property from the Debtor to the CO-
OP. The Memorandum of Proprietary Lease (99-year lease) issued
by the CO-OP and given to each original shareholder/purchaser
represented the writing whereby the shareholder/purchaser gained

an interest in his or her particular unit in the Property.

Conclusion

The deed from the Debtor in Bankruptcy to the CO-OP was
exempt from documentary stamp taxes under s. 201.02, F.S., under

the cited rule above.

Because the property was purchased by the CO-OP with funds
supplied by the principal, original shareholder/purchasers, the
representations of ownership (99-year Memorandum of Proprietary
Leases) are not subject to documentary stamp tax when actually
issued by the CO-OP after the closing. This applies only to the
original shareholder/purchasers who had furnished the funds in
advance for the original purchase of their units in the park or

had paid a deposit and bound themselves for the balance.

However, this treatment would not apply to memorandums of
proprietary leases issued to subsequent purchasers. New
shareholder/purchasers after this original closing transaction
(between the Debtor in Bankruptcy, the CO-OP and the original

shareholder/purchasers) must pay documentary stamp tax for the

purchase of their units. This is because the subsequent
purchases of units would not be governed by the exemption under

the Chapter 11 Bankruptcy transfer.

Some of the original shareholder/purchasers bound
themselves by a note and mortgage given to secure payment of the
balance of the purchase price not covered by their original
deposit. These notes/mortgages were subject to documentary

stamp tax under s. 201.08, F.S.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than

expressed in this response.

You are further advised that this response, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department

within 15 days of this letter.

Sincerely,

M.E. Clemens, C.P.A.
Senior Tax Specialist
Technical Assistance and Dispute Resolution

Office of General Counsel

MEC/mh